A Disturbing Trend for Automakershttp://www.fool.com/investing/general/2013/02/06/a-disturbing-trend-for-automakers.aspx Daniel Miller
February 6, 2013
I'm not sure what it was. Maybe I was just in a good mood. But I enjoyed the Super Bowl commercials more this year than last. There was one in particular that made my jaw drop, and not because it was the funniest or flashiest, but because it just flat out surprised me: The Mercedes-Benz commercial, with Willem Dafoe acting as the devil, showed the luxury CLA model with a sticker price starting at $29,900.
There's a big push by automakers to capitalize on the 75 million Americans in the 30- to 40-year-old range, many of whom desire luxury vehicles but can't afford the $40,000-plus price tag the baby boomers can. Yet as an auto investor, I can't help noticing that the new entry-level luxury segment is all of a sudden crowded. I'll show you how many vehicles are in this segment, and why it could lead to big problems for Ford (NYSE: F), General Motors (NYSE: GM), Toyota Motors (NYSE: TM) and Honda (NYSE: HMC). I'll also cover factors that we, as auto investors, need to keep in mind going forward.
According to Edmunds, there are 27 vehicles in the luxury segment in the $25,000 to $35,000 price range. Looking specifically at the target line of $30,000, here is the list of vehicles competing.
That's not the only cause for concern. As the line between mainstream and luxury blurs, competition for sales will heat up more rapidly. The expansion of this segment could also come back to haunt automakers if demand for luxury vehicles takes a dive, forcing dealerships to increase incentives to stay competitive.
"Everybody seems to be expanding their product line, and you wonder if that isn't going to lead to problems," said Wilbur Ross, CEO of private-equity firm WL Ross, recently at the Automotive News World Congress. "It may lead to some more volatility in market share, and it may lead to, in effect, overcapacity in particular segments."
Among the unlikely names entering the luxury segment are Ford, with its Lincoln MKZ sedan and MKC crossover; Kia, with its 2014 Cadenza premium sedan; and Volkswagen, with its CrossBlue crossover.
Factors to watch