Automakers now have widely differing opinions about the future of the luxury car market, with the domestics holding a typically bullish view and the Europeans adopting a more bearish stance.
They agree on some things, however.- American baby boomers are becoming more affluent as they mature and are moving into larger, more expensive cars.
- Luxury cars carry a much higher profit potential for automakers than do models for the masses.
- Luxury cars are considered one of the most effective means of letting others know "you've arrived," as well-heeled people say.
- New entries by Japanese carmakers this fall pose a serious threat by creating unprecedented competition.
The difference of opinion concerns how much the luxury car market will expand during the early 1990s - and which automakers stand to gain in this increasingly crowded segment.
Two views were highlighted by two carmakers, part of a University of Michigan symposium earlier this month. One was General Motors, the nation's top carmaker now struggling to maintain its comfortable dominance of the overall U.S. car market.
The other was West German carmaker Audi, which is fighting to restore sales after enduring a campaign pinpointing its 5000 model as prone to unintended acceleration.
The luxury car market has grown from about 1.1 million units, or 9.7 percent of total U.S. vehicle sales in 1978, to 1.3 million units, or more than 12 percent of the overall market last year, said John G. Middlebrook, GM's vice president of marketing.
But the number of American-made luxury cars declined from 80 percent to 55 percent during that time, as European carmakers like BMW and Mercedes-Benz doubled their presence to over 388,000 sales, he acknowledged.
Still, GM is confident it can maintain its leadership in this market, as its Cadillac division has for 40 years. It expects the overall luxury market will approach 1.5 million cars by 1995, with the major growth seen in the $20,000-$35,000 segment - right where Cadillac is.
But while Cadillacs still outsell all European brands combined, it has lost its luster as the "standard of the world" as buyers have migrated toward more prestigious European marques.
Cadillac is also competing in a market increasingly fragmented by carmakers that are nibbling at it from all ends.
Japanese automakers increased their luxury car sales by more than fivefold during the past decade, to 202,000 sales last year. Honda's Acura division blazed the trail for even more expensive models to bow this fall from Toyota and Nissan, competing in the $25,000-$40,000 range. Acura, however, is now showing some weakness.
Many European luxury carmakers have been forced to move up the price ladder because of currency squeezes and new competition. They have spent years ingraining Americans with the idea that "European" is synonomous with "quality." This has enabled them to retain their presence in the lucrative U.S. market by selling fewer cars at higher prices.
Years ago the Japanese embraced that same strategy to successfully overcome deep-rooted American perceptions that their products are cheap. Now they are using their well-documented manufacturing efficiencies along with this as a ticket into the luxury car market.
GM seems almost oblivious to the changing patterns of buyers in the luxury car market.
"Our research indicates baby boomers are more likely to adopt the buying habits of their parents rather than retain their smaller cars," Middlebrook said.
Richard Mugg, chief executive officer of Audi of America, strongly disagreed.
"Do you really believe the yuppie generation is going to reach a magic age and change their values? That is the essence of the difference between the hopes of the domestics and the hopes of the imports," he told the symposium.
Audi conservatively predicts the luxury market will grow by only 300,000 cars by 1994 as Americans grow wealthier. But external pressures like environmental concerns and higher fuel costs may limit the market for luxury cars, especially those with larger engines.
GM will suffer most in the future luxury car market, as its share dwindles to below 42 percent by 1994, Mugg predicted, adding that by that time, the Japanese will hold 36 percent of the market, up from 17 percent now, and the Europeans' share will erode to 22 percent, from nearly 30 percent now.
"The Europeans will have no place to run," he said, adding that those carmakers doing business in North America will have to get used to the relatively short design cycles now common among the Japanese.
Marketing will be the deciding factor as automakers strive to sharpen their product appeals, Mugg said. "The desire for individualism does not change."