German luxury-car maker Audi has seen booming growth in recent years, growth that has made it the most profitable part of the giant Volkswagen Group (NASDAQOTH:VLKAY).
That growth has come as the brand has hit home run after home run, winning plaudits for styling, build quality, technology -- and high performance.
Not all Audi buyers want a high-performance car. But cars like the new RS7 Sportback are important to luxury brands for reasons that go far beyond the profits they generate. As Fool contributor John Rosevear explains in this video, "halo cars" like the RS7 are critical to many brands -- which is why Audi's new rocket ride has plenty of competition.
A transcript of the video is below.
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John Rosevear: Hey Fools, it's John Rosevear. So here it comes, the 2014 Audi RS7, it's the super high performance version of the A7, which is a low-slung four-door that Audi seems to want to call a coupe.
The RS7 has all wheel drive, of course, along with a twin-turbocharged 4.0 liter V8 that makes a whopping 560 horsepower. There's all sorts of high-tech wizardry going on too, advanced differentials that increase grip and acceleration out of turns, and even cylinder deactivation that helps that monster engine avoid gas-guzzler taxes and also keeps the RS7 quieter during highway driving.
So how much does all this cost? The RS7 starts at a mere $104,900 dollars, and Audi surely expects to sell only a tiny number of them, so it raises the question of why would any company in the super-competitive global auto business bother making the investments to make a product like this?
Well, there must be a good reason, because the RS7 has plenty of competition. There's BMW's (NASDAQOTH:BAMXF) M5, which also has 560 horsepower from a twin-turbo V8 and starts at $92,900 dollars, the Mercedes-Benz E63 AMG 4Matic, which has 550 horsepower from its twin-turbo V8 and starts at $92,770 dollars, and the Cadillac CTS-V, which breaks the formula by having a supercharged V8 that's good for 556 horsepower and is a relative bargain at a mere $64,900, but that's an outgoing model, it'll be replaced soon with a version based on the all-new CTS, and it's a safe bet that the all-new version will be faster, more high-tech, and considerably more expensive.
And Nissan's (NASDAQOTH:NSANY) Infiniti luxury brand just showed off what they call the Eau Rouge version of their Q50 sedan, it has 560 horsepower from a twin-turbo V6, and we don't know the price yet or even whether they're going to build it, but I think they will build it and I bet the price will be right in this neighborhood.
So why do these cars exist? They exist really for marketing purposes, brand building purposes. Having an extreme high performance car that gets on the cover of magazines and gets raves on the big car blogs reflects well on the rest of your product line, makes it seem more sporty and more desirable. And these cars get bought by people who tend to be fairly hardcore car enthusiasts, and when they rave about their car, it influences other people who may then be more drawn to the same brand.
The industry calls them "halo" cars, because they put a halo on the brand, make it seem more special, even if the total sales and profits from the model are tiny. It's a tiny market segment but the competition for top-dog status is pretty fierce, the RS7 looks really hot, the M5 has had terrific reviews, and I can't wait to see what Cadillac does with the next CTS-V, probably next year. Thanks for watching, and Fool on.
John Rosevear owns shares of General Motors. The Motley Fool recommends BMW and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.