'Near-luxury' Cars a Hit with Middle-class Buyers

LOS ANGELES (CBS.MW) -- Cecily Fraser writing for CBS.MarketWatch.com submited this story:

What's the difference between an entry-level luxury car and a top-of-the-line Honda Accord? Certainly not their sticker price.

With the median price of a new car in the U.S. now over $21,000, luxury carmakers have been rolling out new models starting at a few thousand dollars more hoping to entice middle-class shoppers to buy up in class.

The marketing tactic is succeeding, especially with younger buyers seeking a bit of prestige. Sales of these "near-luxury" models are up 14 percent from last year, while their prices inched upward just 0.5 percent, according to Art Spinella, president of CNW Marketing Research.

"These are trimmed down, a little more agile, younger brothers and sisters of the bigger cars," said Bob Brisco, chief executive officer of Carsdirect.com.

These models are appealing to many would-be Toyota and Honda buyers who find they're priced competitively with fully loaded versions of the Camry and Accord, the two best-selling cars in the United States.

Models counted in the category include Acura TL, Audi A4, BMW 325i, Infiniti I35 and Lexus ES300, Lincoln LS, Chrysler 300M and Saab 9-3. Suggested retail prices range from under $25,000 for a Volvo S4 to $36,950 for a Mercedes-Benz C320, car makers are capitalizing on their cachet and introducing lower-priced models such as the Jaguar X-Type and Cadillac CTS , pressured in some cases by their U.S. manufacturing parents feeling the heat from cheaper imports.

Driving sales

Women are accounting for a greater portion of sales. Female buyers now represent almost 40 percent of the market for the entry-level BMW 3 series (starting below $28,000), up from 18 percent in 1990.

"Women's pay scales have gone up and the price of vehicles has remained steady in past years," Spinella said.

The near-luxury cars are also holding their value well relative to their costlier siblings, too.

A 1999 Audi A4, four-door sedan with a V-6 engine depreciated 10.2 percent from 2000 to 2001 and 16.9 percent from 2001 to 2002, making it worth about $19,725 now, according to the National Automobile Dealers Association. By comparison, the 1999 Audi A8 four-door sedan with V-8 engine lost 16.5 percent from 2000 to 2001 and 18.4 percent more from 2001 by 2002, for a present value of $29,425.

A host of choices

Consumers in the market for near-luxury models that handle well and offer large interior space, good gas mileage and strong resale value will find they have a number of options to choose from, Brisco said. Keep in mind, what's listed below are base prices, so options would increase the total cost.

There's a lot of buzz surrounding Cadillac's CTS, which last year replaced the Catera after it failed to capture buyers. The fresh look of the CTS, which starts at $29,350, is helping revive the Cadillac brand and woo young motorists. Since introduction, the average age of Caddy buyers has fallen by about 7 years to 55, Spinella said.

Many manufacturers "need to have younger buyers come in because they'll buy more cars over their lifetime," he said.

Acura, the first of the Japanese luxury brands, offers good value at a low price point, Brisco said. The TL, which competes with the CTS, retails at $28,980. In the same vein, Mazda's luxury sedan, the Millennia, is selling for $28,075.

At $29,305, the X-Type is "the lowest-priced Jaguar in the company's history," Brisco said.

The Volvo S40, a four-door sedan with a four-cylinder engine, comes with "all the cues and safety," said said Frank Ursomarso, president of Union Park Automotive, which carries BMW, Volvo and Jaguar models in its Wilmington, Del. showroom. It starts at $23,900.

The BMW 330i, one of the best reviewed cars in any segment, particularly for performance, is selling for $34,000.

Going forward, buyers might even see offerings from Korean brands such as Hyundai that have yet to make their mark on the near-luxury class, but have developed a following among sedan owners, Spinella said. "It already has the XG350 that has done really well."