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The 3-Series is far and away the best-seller for BMW.
By Paul A. Eisenstein, msnbc.com contributor
When Mercedes-Benz pulls the covers on the all-new A-Class hatchback during the Geneva Motor Show this March, car buyers will get a glimpse of the changes rapidly sweeping through the luxury car market.
The pint-sized Benz clearly doesn?t fit the classic mold. Americans, in particular, have always defined luxury cars by the inch and pound, with some of the most memorable models from Detroit stretching over 20 feet, nose-to-tail. And there are products that hew to that classic image, like the 3-ton Rolls-Royce Phantom.
But in today?s world even luxury buyers are well aware of fuel costs and crowded urban streets. That?s especially true in markets like Europe, where downsized models have been gaining traction for more than a decade. But manufacturers are betting that even in the U.S. the mantra for many luxury buyers is now ?small is beautiful.?
Certainly, the market for so-called entry-luxury offerings has never been more substantial. The 3-Series is far and away the best-seller for BMW, much as the A4 is for Audi.?
?What defines luxury has been evolving,? says Rebecca Lindland, chief researcher for IHS Automotive, who adds that Americans are beginning to catch up with global trends.
Compact models, such as the A4 and 3-Series, appeal to a wide range of buyers and for a number of different reasons. For some they are the affordable entry point into the luxury market. For others they are all you need ?to get the luxury look and conveniences you want,? Lindland added.
With all the varied offerings, old and new, in the BMW line-up, from the X3 crossover to the flagship 7-Series, the ?3-er? is by far the best-seller, generating 94,000 unit sales in 2010, or roughly a third of the brand?s total U.S. volume. That?s down about 7 percent from the 101,000 BMWs sold in 2010 -- but it?s no surprise, given that the current 3-Series was in its final year, the automaker unveiling an all-new version at the 2012 Detroit auto show in early January.
Indeed, the annual event was chock full of entry-luxury models, including not only the new BMW, but also a replacement for the Audi A4 and an all-new compact luxury model from Cadillac, dubbed the ATS.
The Germans shouldn?t be?complacent when it comes to Caddy?s chances.
?I think the ATS is going to be very competitive,? said Joe Phillippi, chief analyst with AutoTrends Consulting, adding that the car is ?spectacular.?
The new model slots under Cadillac?s existing CTS -- which will now move slightly up-market, targeting the BMW 5-Series. If the General Motors brand is on target, the ATS could soon become its best-selling product line.
But the ATS will find tough competition coming from sources other than Germany. Lexus fields a pair of offerings in the segment, the IS and ES lines, which collectively generated 71,000 sales last year, about 2,000 more than the Mercedes-Benz C-Class.
No product line arguably underscores the changes that have swept through the luxury market in recent decades. It took several years of debate before the carmaker grudgingly brought to market the so-called ?Baby Benz.??It proved far more successful than initially anticipated, appealing to both young buyers and to those who wanted a more fuel-efficient alternative after the twin oil shocks of the 1970s.
These days, the C-Class lags well behind its Bavarian competitor, ?reflecting the problems Mercedes is having, in general, connecting with young buyers,? says analyst Lindland.
Stan Honda / AFP - Getty Images
Upscale sedans, electric vehicles and old-school muscle cars make their debuts at the 2012 North American International Auto show.
Appealing to the next-generation ?will be critical,? suggests Clay Dean, head of GM?s advanced design department, because getting a young buyer in early improves a brand?s chances of keeping them around as they grow older and choose to trade up -- although it?s a matter of debate whether ?millennial? buyers will follow the traditional ?bigger-and-better? path of older generations.
That?s why carmakers like Mercedes are looking at even smaller offerings, such as the new A-Class, which will be the Teutonic carmaker?s first model based on the new MFA (?modular front architecture?) platform for compact luxury vehicles. According to Daimler AG?s CEO Dieter Zetsche, as many as five different Mercedes product lines will likely share that platform, including the only slightly larger B-Class.
Meanwhile, as part of an expanding series of joint ventures, the MFA platform will be shared with the Euro-Asian Renault-Nissan Alliance. It will first appear under the sleek skin of the Infiniti Etherea -- a production version of the concept vehicle that was a smash hit at last year?s Geneva Motor Show.
In a quid-pro-quo, Nissan will provide a new generation of small, high-mileage four-cylinder engines for the next-generation Mercedes-Benz C-Class. That updated sedan will go into production in 2014 at Mercedes? Tuscaloosa, Ala., assembly line.
That, in itself, is a significant move, as lopsided exchange rates are a serious problem for both European and Asian importers. The weaker dollar compared to the yen and euro has made it difficult to generate a profit importing even small luxury models. That could give a leg up, for once, to Cadillac, with the ATS, until foreign carmakers can shift production to their U.S. factories.
The alternative would be to walk away from what is, by all expectations, likely to be the fastest-growing segment of the American market.
That?s a strategy that would cause more problems than it solves. While it remains unclear just how small is too small for American luxury buyers -- the success of the new A-Class anything but certain -- there?s no doubt that the battle for the entry-luxury buyer with products like the 3-Series, A4 and ATS only now heating up.
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