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The Luxury Auto Market
It has often been said that all people have two things in common, death and paying taxes.
On the surface that seems like a true statement, but upon looking more deeply people often have
many other factors of commonality. One such factor is that most people will use a motor vehicle
of some sort at some point in their lives. At the high end of the market for motor vehicles is the
luxury auto market. As with other luxury markets, a car is considered a luxury when it has
features and benefits above and beyond those of strict necessity. In 2012 the world surpassed
production of 60 million motor vehicles annually, or approximately 165,000 each day. With
median wealth growing around the world, a significant and growing part of the auto market in
whole is the luxury auto market. The luxury auto market includes leaders include BMW,
Mercedes, Lexus, Infiniti, and it appears that they are not going anywhere any time soon.
In trying to understand the luxury auto market and the longevity of the above auto-
makers it is vital to try and understand the key producers of luxury automobiles. A complete
picture cannot be established without trying to answer some of the following questions: Who are
these companies and how big are they? What does their labor force look like? How were the
companies started or how did they end up configured in their current state? How do they market
to and determine their target demographics? How safe are these cars? Does the luxury brand
mean sacrificing safety or are they actually safer at the luxury end of the spectrum? What types
of criticisms or awards have the producers been given? We will look at each of these questions
and more in trying to determine the breadth of the luxury auto market.
The term luxury suggests a vehicle with higher quality equipment, better performance,
more precise construction, greater comfort, higher design, technologically innovative, or features
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Prof. Ta Bus. Cornerstone
that convey an image, brand, status, or prestige, or any other ‘discretionary‘ feature or
combination of them. The term is also broad, highly variable, and relative. It is a perceptual,
conditional and subjective attribute that may be comprehended differently by different people;
“what may be luxury for one may be premium for another”. In contemporary usage, the term
may be applied to any vehicle type including sedan, coupe, hatchback, station wagon, and
convertible body styles, as well as to minivans, crossovers, or sport utility vehicles and to any
size vehicle, from small to large and in any price range. Moreover, there is a convergence in the
markets and a resulting confusion of luxury with high price: where there may have been a clear
difference in price between luxury and others, there is no longer an absolute separation between
premium and luxury, with what may be premium brands now more expensive than the equivalent
so-called luxury ones (Kapferer).
BMW remained at the top in the global luxury vehicle market in 2013 with 1.66 million
unit sales, up 7.5% year-on-year. The automaker gained from strong demand for luxury vehicles
in the U.S. and China. Although losing its crown to Mercedes-Benz in the U.S. premium
segment, BMW posted record sales of over 309,000 units in the country, representing a 10%
growth over 2012 levels. In January as well, sales of BMW’s passenger cars have grown by an
impressive 24% over 2013, bolstered by strong sales of the flagship 3-series sedan. After
suffering a dip through 2011-2012, the proportion of luxury vehicles in the overall U.S. auto
industry rose to over 11% last year, showing promising signs of growth going forward (Forbes).
China beat the U.S. to become BMW’s largest car market in 2013, accounting for nearly 400,000
unit sales. This represented growth of 20% for the automaker over 2012 in China, bolstered by a
rising proportion of high income groups in the country. According to McKinsey & Co, China’s
luxury car market will grow at a combined annual growth rate of 12% through 2020, surpassing
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Prof. Ta Bus. Cornerstone
the U.S. as the world’s largest premium car market as early as 2016. Lear Corporation, who
manufactures the interiors for the leading luxury brands has also benefited from the conducive
market conditions in China, generating $1.8 billion from the country last year, up 35% from
2011.
While at first glance BMW, Mercedes, Lexus, and Infiniti all appear very similar, a
deeper look will show that each company has their own nuance and niche in the luxury vehicle
market. Only one of the four companies is not a division of a larger corporation, two of the
automakers are only separated by just 137 miles, and all four were in industries other than luxury
auto making when they were founded.
Bavarian Motor Works (BMW) was founded in Munich, Germany shortly before the end
of World War I after a restructuring of a company that focused on airplane production for the
Germans during the war (Johnson). After the war, BMW was not allowed to produce airplanes
and shifted its focus to motorcycles and cars. The company returned to aircraft production during
WWII but began to focus on economic cars after the war, a far cry from today’s luxury brand.
During the late 50s and early 60s BMW morphed into the luxury car brand we know today.
As of 2012, BMW employed 105,876 employees with manufacturing plants in 7
countries that serve worldwide. At 1.5 million vehicles sold in 2012, it narrowly edges Mercedes
out of the top spot for luxury automotive brand. BMW also holds the MINI brand as well as the
Motrorad division, which sells BMW’s motorcycles.
A two and three-quarter hour drive down the A8 from BMW will take you to the
Mercedes headquarters in Stuttgart. Founded in 1902 as a joint venture by Daimler Motors
Corporation and the French company Panhard & Levassor the company later partnered with Karl
Benz to sell the first Mercedes-Benz branded automobiles in 1926 (History of AMG). The
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Prof. Ta Bus. Cornerstone
Mercedes-Benz brand has been through many changes and is now a subsidiary of the Daimler
AG corporation which also owns the super-economic line Smart and formerly held Maybach.
Mercedes-Benz sold 1.32 million vehicles in 2012 with a workforce of 279,972, it must
be noted that the workforce also included Daimler AG and its subsidiaries. Mercedes operates
factories in 27 countries, including its home country of Germany. Only about half of these
factories produce their luxury vehicles while the rest produce their line of package trucks and
buses.
The Lexus brand of luxury vehicles is a division of Toyota Motor Corporation founded in
1936 as a spinoff from Toyota Industries which had produced looms for industrial uses since
1924. Like both Mercedes and BMW, Toyota was heavily involved in military vehicle
