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Buyers snap up luxury cars
Demand increases 13.8 percent for year despite lower incentives than on mass market vehicles

By Eric Mayne / The Detroit News



Sales of luxury vehicles are surging even without generous discounts, bucking the trend that’s driving demand in other vehicle segments.

Through the end of March, U.S. luxury vehicle sales are up 13.8 percent this year compared with last year, while sales of all vehicles are up just 3.9 percent, according to industry data tracker WardsAuto.com.

Demand is growing even as incentive spending to push sales of luxury cars and SUVs is declining, says Edmunds.com, which monitors vehicle pricing data. At $1,263 on average per vehicle, down from $1,843 in 2002, the incentive rate for luxury SUVs is the lowest of any segment in the industry, said Jesse Toprak, director of pricing and market analysis.

Consider the Lexus GX 470, Toprak said. Incentives on the mid-size luxury SUV totaled $69 last month, yet year-to-date sales showed a 13 percent increase, compared with the first three months of 2003. But this doesn’t mean the beginning of the end for incentives, which include cash rebates, low-rate loans and other promotions. The average amount leveraged against all vehicle models last month was $2,379, up from $2,235 in March of 2003.

“Incentives aren’t likely to go away,” Toprak said, “not soon anyway. If ever.”

Moreover, luxury vehicle manufacturers should not become complacent.

To maintain the segment’s sales, automakers must develop more innovations to differentiate upscale products from more mainstream models, said Mark Fields, chairman and CEO of Ford Motor Co.’s Premier Automotive Group, which includes the automaker’s European luxury brands.

Features such as navigation systems and satellite radio, once the exclusive domain of luxury brands, are now available on lower-priced products, said Fields, who oversees Jaguar, Land Rover, Volvo and Aston Martin.

“That will continue in the industry, which forces the luxury manufacturers to continue to innovate, based on customer requirements,” he said. “Those systems will continue to mature, to provide what I would call a much more user-friendly interface with the user.”

To those who aspire to such features, they’re closer than most people think, said Harry Asher, product strategy manager for Siemens VDO Automotive, a leading industry supplier.

Navigation systems that automatically reroute drivers based on traffic conditions or accidents are “the next big frontier,” he said. Such systems are already in use in Europe, Asher added.

Sensor-based “advanced driver assistance” is further out, he said. This would link features such as lane-departure warning systems with a vehicle’s steering or braking and, when a collision is imminent, the vehicle would automatically take evasive action.

As the industry’s prime selling season approaches, luxury vehicles represent 13.1 percent of the U.S. auto market, up 12.7 percent in 2003, according to WardsAuto.com.

But Fields said there is a limit to the segment’s growth.

“There is a certain water level that we’ll reach,” he said. “Whether that’s 12 percent of the industry or 13 percent, it can only grow so much. ... But I don’t think it’s a bubble that’s about to burst.”

Industry analyst Joseph Phillippi said the baby boomer generation is poised to move into luxury cars and trucks.

“The college tuition is over, the mortgage is paid off,” Phillippi said. “Very often, they’re two-income families as well. That all bodes relatively well for the luxury vehicle market.”

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