German Auto Makers to Shake Up Luxury Market

By VANESSA FUHRMANS

Germany’s luxury car makers, fresh from record 2012 sales, plan to launch new, lower priced models that would draw younger, less affluent U.S. customers away from mass market brands such as Ford Motor Co.,

Honda Motor Co.

and Toyota Motor Corp.

On Monday, BMW AG

unveiled a new version of its top-selling 3 Series sedan designed to have a starting price about $4,000 less than its current least-expensive $37,000 U.S. 3 Series. A day earlier, Daimler AG

showed its coming 4-cyclinder Mercedes-Benz CLA, which executives hinted could start at a price just below $30,000. Audi

is working on 2014 release of a four-door version of its new A3 compact expected to cost in the mid- to high $20,000 range in the U.S.

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European Pressphoto Agency

Dieter Zetsche, chairman of Mercedes Benz, presents the new Mercedes-Benz CLA before the North American International Auto Show in Detroit.

The three vehicles represent the most concerted effort in a decade to lower the barrier to entry to their brands in the U.S. The vehicles are also destined for China. The key target, especially for Mercedes, are consumers in their 20s, 30s and early 40s whose numbers rival the size of the baby boom generation.

«This group is 75 million strong,» Daimler Chief Executive Dieter Zetsche said during Sunday’s launch of the CLA ahead of the North American International Auto Show in Detroit. Scott Keogh, head of Audi’s U.S. operations, says a lower-cost A3 sedan has the potential to could become the second or third highest volume model in Audi’s U.S. lineup, attracting younger buyers and the «host of people moving out of non-luxury brands. «

Their plans present a potential threat to Detroit’s efforts to push loaded versions of mainstream sedans such as the Ford Fusion and Chrysler 300 above $30,000. Brands such as Lexus, Acura or Cadillac also could face more pressure.

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Geoff Robins/AFP/Getty Images

Daimler AG showed its 4-cyclinder Mercedes-Benz CLA on Jan. 13. Executives hinted that it could start at a price just below $30,000.

The German brands face some risks as well. Cheaper sedans could cut into sales of their more expensive models. It is also not clear that U.S. consumers affluent enough to buy or lease a $30,000 to $35,000 car will flock to small cars or utility vehicles originally designed with Europe’s high gas prices in mind.

Mark Reuss, General Motors Co.’s

head of North America, says such down market moves haven’t succeed in the past, citing BMW’s 1-series push in the U.S. He said the lower-priced German cars likely would disrupt their own used-car sales.

Executives at the three German brands say they can offer lower priced models thanks to a combination of streamlined engineering and manufacturing operations that can produce vehicles at lower cost. The weakening of the euro’s value against the dollar as Europe’s financial crisis has ground on also makes it easier for the German brands to sell their small, European-built models profitably in the U.S.

Mercedes hopes to win young, affluent buyers such as 33-year-old Andy Yang. Mr. Yang, a New York online marketing director, says his parents always admired Mercedes cars, but he has been more drawn to BMW’s more youthful, high-performance reputation.

Live: Detroit Auto Show Stream

Shopping for a new car in November, he took a cursory look at a Mercedes but would up buying a BMW 335 compact sports sedan instead. «To me, BMW represents sporty and luxurious,» Mr. Yang says. «Mercedes is just luxurious.»

He isn’t alone. In the U.S., the average age of a Mercedes owner is 52, three to four years older than the typical driver who steers toward BMW or Volkswagen’s

AG’s Audi, according to researcher R.L. Polk Co. The German luxury-sedan stalwart is losing even more of those younger buyers to rivals’ sport utility vehicles and smaller sedans. That is a problem especially in new luxury markets such as China, where the average millionaire is in his or her early 40s.

«We need to keep our ecosystem healthy, and that includes replenishing it with new buyers who can come in at the lower end of the brand,» said Steve Cannon, Mercedes-Benz’s U.S. operations chief. The younger they start driving a Mercedes, the more they’re likely to buy higher-end versions as they get older and wealthier, he says. «If there is a risk, it’s not doing this. «

Mercedes’s CLA marketing campaign kicks off during the Super Bowl next month with an ad featuring the singer Usher and swimsuit model Kate Upton. Beyond the 60-second TV spot, the game itself is being played in the Mercedes-Benz Superdome in New Orleans. Mercedes says it bought the stadium’s 10-year naming rights for a reported $100 million to $120 million knowing the stadium would host the mega media event in the same year it would launch a product «whose sole purpose is to bring in a new generation of buyers,» Mr. Cannon says.

Mercedes has been wrestling with its aging customer demographics for some time. Four years ago, it created an online community of several hundred 20- and 30-something customers, dubbed «Generation Benz,» whom Mercedes marketing teams regularly consult about their habits and preferences. To Mercedes’s surprise, for instance, the group has been drawn to the brand’s 125-year heritage, and so a number of its ads since have played up images of its 1950s roadsters and other vintage Mercedes.

The pressure to woo younger buyers is growing as the buying habits of its traditional, older clientele also are changing. Many affluent baby boomers are shunning the conservative sedans preferred by older generations past in favor of smaller, sportier versions.

«Older car buyers tend to be more cautious,» says Jesse Toprak, a senior analyst with industry researcher and forecasting company TrueCar.com. «When they hear the word recession, they stop purchasing, especially when it comes to something big expensive.»

—Joseph B. White contributed to this article.

Write to Vanessa Fuhrmans at vanessa.fuhrmans@wsj.com

A version of this article appeared January 14, 2013, on page B6 in the U.S. edition of The Wall Street Journal, with the headline: Mercedes, BMW Shift to Young Buyers.

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