The American luxury car market is heating up. With the
European auto market in free fall, the onus to generate profits
falls largely on the U.S. and China. The American car market has
rebounded strongly after crashing in 2009. The luxury car market
jumped 12% to 1.6 million units in 2012 and sales for 2013 are
expected to be strong as well, as the initial data
suggests. Luxury cars have fatter margins than mainstream cars
and therefore it is not surprising to see every major automaker
revamping its portfolio of more expensive cars.
In the last few years, American automakers have been troubled by
bankruptcy proceedings and restructuring activities. Similarly, the
Japanese auto companies' finances had been hit hard by events
beyond their control. Now, as their operations have relatively
stabilized, they can focus on resuscitating their luxury
Who's Doing What?
Last year, General Motors (
) laid out an ambitious plan to double the Cadillac sales within
the next three years. Although its sales were flat in 2012
(~150,000 units), they began to pick up after the new ATS and the
XTS were introduced. In fact, Cadillac's sales were up 32% in
the first two months of 2013. The company also announced recently
that the 2014 version of the CTS will be powered by a solid 420
horsepower V-6 engine. This news is already creating a buzz within
the automobile community.
See full analysis for General Motors
) is in the process of reinvigorating its Lincoln brand by
introducing three new models in the next three years. Ford rolled
out the refreshed MKZ sedan in January and even aired two ads
during the Super Bowl last month. Sales in 2012 were
down 4.1% to 82,150, so this year could be the beginning of a
) is pumping in $1 billion to launch an array of refreshed models
such as the RLX, the MDX sport wagon and the NSX super
sports car. Besides model refreshments, marketing is going to play
a key role in the automaker's quest to regain popularity with
American customers. Japan's third largest automaker has penned a
massive $200 million advertising deal with Boston-based Mullen to
reinvigorate the Acura brand in the U.S.
The problem of a weak brand image is likely to stick with these
brands for the time being. So don't expect any of these to displace
the market leaders any time soon. But the marketing efforts
combined with improved model offerings could help change that
perception, albeit gradually.
Not So Easy
At the same time, the established biggies aren't taking it easy
either. Mercedes, owned by Daimler AG (NYSE:DAI), is all set
to foray into the sub $30,000 category with the launch of the new
CLA this year. The CLA will help Mercedes compete against BMW's
1-series and 3-series and Audi's A3 and A4. Besides the CLA,
Mercedes will also introduce the revamped E-Class this year.
Mercedes sold more than 270,000 cars in the U.S. in 2012, and
the world's biggest economy accounts for a fifth of its sales. This
year has again seen a strong start with sales up 16.7% through
BMW debuted its electric model called i3, which is made up of
lighter carbon fiber instead of steel, at the Los Angeles auto show
last year. It plans to introduce another model under the same
series, called i8, in the first quarter of 2014.
It will be interesting to see how the American luxury car wars
pan out over the next couple of years. As total automobile sales
normalize after the crash witnessed in 2009, it is clear that the
auto companies will find it hard to replicate >10% growth rates
observed over the past couple of years, and so their focus will be
on generating more profits per car rather than relying on volume
We currently have a price estimate of $28 for General Motors's
stock, which is in-line with the current market price.
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