Americans May Start To Attack German Luxury Dominance.
“Don’t make the mistake that (premium sector) market shares are frozen”
The Detroit Auto Show featured luxury sedans with SUVs taking more of a back seat, but what’s surprising was that American upmarket vehicles may finally start to pose a threat to German hegemony.
Volvo, now owned by China’s Zhejiang Geely Golding Group Co, is also in revival mode in the U.S. and will unveil its new S90 sedan. Mercedes takes the wraps of its E class, and the renamed SLC roadster. Porsche will present the 911 Turbo and Turbo S, but the presentation of a production ready Lincoln Continental may set the tone for the show.
According to Hans-Werner Kaas, senior partner and head of the McKinsey Automotive & Assembly practice in Detroit, foreign manufacturers, mainly German, may have dominated the luxury sector for years, but finally Americans are cranking up competitive automobiles.
Earlier this week came news BMW retained its crown as winner of the U.S. luxury segment in 2015, with Lexus of Japan 2nd, and Mercedes 3rd. The result has a familiar ring, but maybe times are changing.
“Don’t make the mistake that (premium sector) market shares are frozen,” Kaas said.
He said American luxury manufacturers like Ford’s Lincoln and GM’s Cadillac had neglected this sector as they stamped out huge numbers of pickup trucks and SUVs.
“That is changing dramatically. The U.S. manufacturers are giving this sector management attention and show a willingness to spend. The U.S. auto makers will become much more competitive with compelling features,” Kaas said.
Tactical change needed
Kelley Blue Book analyst Jack Nerad isn’t predicting a strong U.S. challenge yet, but does say they need to change their tactics to succeed.
“I don’t think Cadillac will do better in the U.S. luxury sector by being a better BMW. It will do better by being a real Cadillac – bigger, more luxurious, quiet; less performance and more luxury. Excess was really the key to success in the 1960s and 1970s. And although Lincoln is now in an even poorer position than Cadillac, the new Continental is more of a traditional American luxury car – bigger more comfortable, lots of ease of operation. That’s what the American luxury market wants,” Nerad said.
Nerad says a key buying factor in the sector has not helped American brands.
“The key to success has often been the fact that the vehicle has the cachet of being foreign and built somewhere considered cooler than America. And even though quality surveys show many German luxury vehicles have problems, they still maintain leadership because they have exotic quality,” Nerad said.
Meanwhile, Nerad said the premium sector is growing at a faster rate than the market as a whole and its higher margins make it a big reason why Ford is investing in the Lincoln revival.
Volvo is resurgent after years of stagnation.
“Volvo has been lying fallow for near on a decade and it is now starting to make noise here,” Nerad said.
The Volvo XC90 big SUV has hit the ground running in terms of sales and the S90 replaces the S80 as the flagship sedan and comes with a plug-in hybrid option too. Audi may launch the new A5 coupe at the show, while Infiniti will unveil the Q60 coupe.
Another long-term threat to the Germans is the Hyundai Genesis luxury brand which will show the G90 sedan.
As well as the important new Mercedes E class, the company will also show the new 12-cylinder S class convertible.
Professor Ferdinand Dudenhoeffer, director of the Center for Automotive Research (CAR) at the University of Duisburg-Essen doesn’t sound too impressed with the notion the Germans are under threat in the sector.
“In Detroit you will feel that Mercedes is the heavyweight among the German premium manufacturers and this year can be the best selling brand (in the U.S.). Audi, BMW and Porsche have less sensational products to offer though, but high powered luxury cars and SUVs are going to do well in the U.S. market,” Dudenhoeffer said.
McKinsey’s Kaas said the U.S. domestic manufacturers have built a firm base from which to launch an attack on the premium sector, but it will take time and money.
“This (assault) requires sustained development and highly differentiated products and quality too. That will take time, but by no means is the market share frozen (in favor of German manufacturers). The Americans have done a quite successful job of restructuring costs and developing higher quality, and pleasing customers. They know this sector is highly competitive and will take nothing for granted,” Kaas said.