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The New Face of Luxury

High-end auto makers are reaching beyond rich leather and burlwood interiors to distinguish themselves. As posh down-market competitors press from below, choices like green engines, smaller vehicles and wifi are driving the luxury category
Paul A. Eisenstein
From the Print Edition:
Sylvester Stallone, July/August 2010

(continued from page 2)

And, even if they don't, others will try to enter the luxury market. Some may succeed, as Lexus has done. It's hard to recall the derision aimed at the Toyota division when it showed off its original LS400 20 years ago-all the more so considering that Lexus is today the largest luxury nameplate in the U.S.

Hyundai is hoping to mimic that success, and has already scored big with its first up-market entry. In January 2009, the Genesis was named North American Car of the Year by a jury of 50 U.S. and Canadian auto writers. Later this year, Hyundai moves even more up-market with the Equus. While Genesis was targeted somewhere between a Mercedes C- and E-Class, the new model takes unabashed aim at the top-line S-Class. Unlike Lexus, Hyundai has chosen to stick with a single brand, but if Equus is anywhere near as successful as Genesis, that could change. John Krafcik, the CEO of the Korean maker's U.S. operation, hints that the idea of opening a second luxury channel is "still under consideration." 

As they did two decades ago, established luxury makers publicly scoff at that idea, but privately, there's clear concern-and not just about Hyundai, Tesla or Fisker. In years past, upscale buyers were more than willing to invest in a badge, said analyst Brinley, but these days, even luxury buyers are more cautious. And that's a situation made all the more troubling because the gap between mainstream and high-line brands is becoming a lot less definitive. 
Digital Delights
Today, you can get more than 400 horsepower out of a Mustang. Leather seats? Try Ford's new Fiesta subcompact. If that's all you want it'll cost less than a custom paint job on a Rolls-Royce. So, what defines today's luxury car? More and more, it's digital technology, whether in the form of a so-called "infotainment" system, such as the 2200-watt blaster in the new Bentley Mulsanne, or an advanced safety device, such as the radar-guided cruise control and emergency braking system that is on the new Mercedes E-Class coupe. The technology not only adjusts itself to the flow of traffic, automatically slowing down or speeding back up again, but will hit the brakes hard in an emergency if the driver hesitates. 

A significant area of growth is in "connected" technologies, said Ian Robertson, BMW's global sales chief. Today, Bluetooth is the norm, rather than the exception, as is real-time traffic and weather, never mind in-car navigation. "And there'll be hugely more offerings in the future."  

In whatever form it comes, estimated Robertson, the cost of the electronics in a typical luxury car will soar to anywhere from 30 percent to as much as 40 percent of the sticker price by 2015. This is a range most experts concur on. Traditionally, luxury makers have led the way, introducing breakthroughs like antilock brakes, or ABS, electronic stability control and in-car mapping. But it's becoming more difficult for these makers to maintain that lead. With the 2009 launch of the all-new 7-Series, BMW unveiled a new technology designed to watch for traffic as you backed out of a mall parking spot. Barely a year later, Ford introduced its own Cross-Traffic Alert on the reborn Taurus sedan. 

It's much harder to maintain your lead with digital technology, sighed Ernst Lieb, CEO of Mercedes-Benz U.S. One reason is that luxury manufacturers have tried to reduce their own costs by turning to outside suppliers, such as Bosch or Delphi, to develop the latest digital whiz-bang. The trade-off is that a company like Mercedes only gets an exclusive on new technology for a short time. So the maker is rethinking its "core competencies," said Lieb, with, "a trend towards in-sourcing to try to get ourselves a little bit of advantage" back. 

Translation: look for luxury makers to fire up their in-house development operations to maintain a lead on next-generation electronics. At least, that would be the theory. But are there other ways to differentiate a Mercedes from a Mazda?

The Return of the Individual
By its very nature, luxury connotes exclusivity, and that's likely to be something high-line manufacturers stress with a renewed emphasis. Walk through the BMW plant in Dingolfing, a suburb of Munich, and not only its size, but its complexity will overwhelm you. The plant, which produces models including the 7-Series and next-generation 5-er, enjoys a huge degree of flexibility. Plant officials estimate they can produce 10 to the power of 64 variants of just the flagship 7.  

In the U.S., buyers have traditionally settled for whatever is on the lot when they decide it's time to buy. BMW is trying to encourage its American customers to follow a more European model, customizing their orders. (See sidebar, page 105) The company allows a buyer to make changes up to six days before the vehicle begins its journey down the assembly line.  

BMW is not the only maker offering increased personalization. The premium in price, comes with a payoff: a vehicle that reflects personal tastes, not the best guess of some faceless dealership sales manager. 

A contrasting approach to individualization is that of Hyundai, which will carefully select only a small number of those in its current retail network to handle the new Equus. Each Equus will come heavily equipped, but provide few options. The Korean maker's strategy is focused on the sales and service side, with "innovative customer services," says CEO Krafcik, designed "to save our customers time." 

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