US losing in another auto race: luxury cars

By the early 1990s, a record number of luxury cars will be sold in the United States. The problem is that growth won't help American carmakers, who are likely to see their share of the high-end market shrink to record lows.

``The domestic manufacturers are out of sync with the way the luxury market has been trending,'' says J.David Power, president of J.D. Power & Associates, a California market-research firm.

A decade ago, American automakers, primarily General Motors Corporation's Cadillac division and Ford Motor Company's Lincoln brand, accounted for 92.5 percent of all US luxury car sales, with the rest broken up among a wide range of European nameplates, such as Mercedes-Benz, BMW, and Jaguar.

Today, European manufacturers have made dramatic inroads. Their market share has jumped to 21.6 percent, compared with 7.5 percent a decade ago. But the Europeans are facing some serious problems as a result of the weakening dollar, which has forced dramatic price increases. Some high-line Europeans, such as Porsche, are posting marked sales declines.

Japanese make biggest gains

At best, Mr. Power says the Europeans' market share should hold at about 21.8 percent by 1992.

It is the Japanese who are likely to make the biggest inroads into the US luxury car market over the next four years, Power forecasts.

Originally making their mark with small, inexpensive, and highly fuel-efficient models, the Japanese have been moving upscale since the establishment of import quotas seven years ago. In 1985, Honda unveiled its Acura marque, the first independent Japanese division devoted exclusively to luxury cars. Within the next 18 months, Nissan and Toyota will add luxury divisions of their own, while Mazda is marketing a luxury model under its own nameplate.

In 1992, Power predicts, the Japanese will command 17.3 percent of the American luxury car market, compared with 7.9 percent today. That growth, he says, will come entirely at the expense of American manufacturers, whose share will diminish to 60.9 percent.

This isn't the first time American manufacturers have seen their share of a particular market niche eroded by import competition, but it could be very costly. Although small cars, still the mainstay of the Japanese, often provide little if any profit, the profit margins on a $30,000 luxury model can be $6,000 or more.

Meanwhile, more and more young buyers are moving into the upscale market, which Power expects to climb to nearly 1.2 million cars in 1993, a record high.

It is the baby-boom generation that is most troublesome for Detroit, says Power, noting that ``many have never owned an American car.''

And their predilection for imports is likely to continue. According to a new Power survey, 43 percent of all luxury buyers under the age of 35 say they would only consider an import, while only 6 percent said they are looking exclusively at domestic models. By comparison, for those over 65 years of age, 56 percent would only consider a domestic model, while 7 percent would only buy an import.

As the younger generation matures, Detroit manufacturers will find themselves with fewer and fewer loyal customers.

US carmakers haven't adapted

The problem, Power says, is that US carmakers have not adapted to the changing tastes of younger buyers who prefer performance and handling to comfortable, living room-like interiors. The study found that European manufacturers Mercedes-Benz and Jaguar had the most positive image among younger buyers, followed closely by BMW.

``Cadillac, Lincoln - they have to adapt to the market. There's room to capture some of those younger buyers if they take the appropriate product action,'' he says.

Power adds that Ford has taken some of the necessary steps, as demonstrated in its new Lincoln Continental, an aerodynamic sedan that has won praise from the often critical automotive press. The company cannot build the Continental fast enough to meet current market demand.

On the other hand, Power notes that ``GM didn't take the right steps to appeal to these younger buyers, and they have had to go back to the drawing board.''

You've read  of  free articles. Subscribe to continue.
QR Code to US losing in another auto race: luxury cars
Read this article in
https://www.csmonitor.com/1988/0720/flux.html
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe