Cars: Affordable Luxury

| By Paul A. Eisenstein | From Rudy Giuliani, Nov/Dec 01

A steady drizzle falls from leaden skies. For someone trying to traverse the narrow roads that snake through the rolling farm country of Dijon, France, this might be a good reason to park the car, stretch out and enjoy a bottle of Bordeaux. But not on this particular afternoon. Not with this particular car. We tear through the quiet countryside, clouds of water spraying from our rear tires. On open stretches, we press the pedal to the floor, holding until the last moment to apply the brakes. As our confidence builds, we enter each corner just a little bit faster, looking for the limits of our new Jaguar X-Type.

"Do you realize how fast you were going?" my navigator asks. Her tone is one of pleasant surprise, rather than panic, as I look down and see the needle pushing 180 kilometers, a bit over 110 mph. I hadn't noticed. "This car," she adds, a grin spreading across her face, "eliminates the wet."

Long known by its code name, the X400, as well as by the nickname "Baby Jag," the new X-Type is the fourth and latest model in the fast-growing Jaguar lineup. The sedan has generated a fair bit of controversy, in part because it shares about 20 percent of its components with the Mondeo, a decidedly downmarket four-door sold in Europe by Jaguar's corporate parent, Ford Motor Co. Mondeo has received some solid reviews for what might be called a commodity car, but if the X-Type simply added Jaguar's trademark bird's-eye maple and leather, it probably wouldn't have amounted to much. Not to worry. The X-Type is likely to surprise and delight; several unexpected steps could make this the most popular product in the British marque's history.

For one thing, Jaguar has launched X-Type in all-wheel-drive configuration. That's become commonplace on today's sport-utility vehicles, but AWD is still a rarity on passenger cars. When you drive the new sedan, you have to wonder why. The bottom line is this: you would have to go to extraordinary lengths to lose traction, even on the wettest of pavement.

The X-Type's popularity, though, is likely to hinge on something even more basic. Equipped with the 194-horsepower, 2.5-liter AJ V-6, the sedan starts at $29,950. (For $39,950, you get the high- performance, 231-hp, 3.0-liter AJ V-6.) That's less than half the price of Jaguar's flagship XJ sedan, and it means "a lot of people who never thought they could afford a Jaguar will suddenly find it within their reach," suggests Michael O'Driscoll, president of the automaker's North American sales subsidiary.

Jaguar is but the latest automaker to discover this fast-building phenomenon of the U.S. auto market. Demand for top-line vehicles, such as the Jaguar XJ-Series, the BMW 7 Series and the Mercedes-Benz S-Class, has been stable in recent years. Yet motorists with Champagne tastes and beer budgets are finding that by stretching only a little, they can enjoy some of the most desirable brands on the road. The X-Type is entering a segment that goes by several names, but perhaps the most appropriate is "affordable luxury" -- vehicles generally priced between $27,000 and $35,000. Cars in this class collectively constitute the fastest-growing niche in the premium market, indeed, in the entire American auto industry. Affordable luxury sales have doubled in the last three years, and, despite the current economic uncertainties, there are no signs that the trend is cooling. By mid-decade, many observers believe, such vehicles will account for as much as half of the overall U.S. luxury sales.

Why has the segment grown so much? Ask a dozen analysts and you're likely to get an equal number of answers, but some seem obvious. An Audi A6 offers a lot more standard equipment than a comparably sized Volkswagen Passat. And perceptions are a key contributor to this booming market's makeup. We've become a nation of brand addicts, and the more exclusive the better. Juergen Hubbert, who oversees Mercedes-Benz's luxury cars for DaimlerChrysler AG, believes that for many motorists, just having the vaunted tri-star logo on the hood "is worth an extra $5,000" in perceived value. O'Driscoll puts a similar price on Jaguar's "leaper" hood ornament. There's a more practical side, as well. High-end brands tend to have higher residual values -- what you'll get when you trade in, or what the vehicle is worth at the end of a lease -- which often offset the initial, higher purchase prices. So, over the entire ownership cycle, your monthly costs may be no more than those for a mundane Mitsubishi, Ford or Nissan.

There's another motivating factor: a rapid expansion in the number of models available. Manufacturers "are attempting to cast their nets wider," says luxury-car market analyst Susan Jacobs, of Jacobs & Associates, and new products, she adds, always spur demand.

The heart and soul of the affordable luxury segment is the original "Yuppiemobile," the BMW 3 Series. This car virtually defined the coming of age and growing affluence of the American baby boomer. "We are the benchmark," is how Michael Ganal, the BMW board member in charge of sales and marketing, describes the compact Bimmer. Now entering its fifth generation, global sales of the 3 Series grew 13 percent last year, to 511,052. A disproportionate share of that number came in the United States, where prices start at $27,500.

BMW has carefully nurtured the model line that accounts for more than half of its sales. The basic look of the 3 Series, down to the trademark kidney grille, is unmistakable, having followed an evolutionary, rather than revolutionary, approach. And this "ultimate driving machine" has maintained its performance-oriented feel. "People build trust," explains Chris Bangle, the automaker's global chief of design in Munich, "because they know where you come from."

BMW may believe in evolution, rather than revolution, but there've still been plenty of changes. Over the past 30 years, the 3 Series has become larger, sleeker and more sophisticated. It has been given better, more powerful engines -- including the newest addition, a 3.0-liter inline-6. And a variety of body styles are now available: the original sedan, a coupe, a convertible and the 325xi sport wagon. The wagon, as well as the 325xi sedan, offers all-wheel-drive. Even more variants are in the works, BMW insiders hint. An X3 is under development, a downsized version of the X5 sport-activity vehicle that launched in late 1999. "Evolving the product," says Jacobs, "is what gives you a youthfulness, not how fast your cars can go."

No matter how fast its products, BMW is looking over its corporate shoulder these days. Its success has inspired an expanding procession of competitors, like the X-Type, all aimed at youthful and often first-time buyers whom manufacturers hope will eventually move up to their more expensive products.

Mercedes introduced the original C-Class only reluctantly in the face of the last oil crisis. But over the last 20 years, the "Baby Benz" has become one of the Stuttgart automaker's biggest sellers, both in America and abroad, making Mercedes the second-largest player in the affordable luxury segment. Long seen as staid and stolid, Mercedes has been desperate to drive passion into its products with models like the new C-Class Sports Coupé.

To find out how well the automaker is succeeding, we took the challenging assignment of driving the coupe along the coast of the French Riviera. With an un-Mercedes price tag starting at around $25,000, we admit to having had jaded expectations as we set off along the Côte d'Azure, a squad of hang gliders circling over our heads, catching the offshore breezes.

From first glance, the car is not your typical Mercedes-Benz. To start with, it shares no common sheet metal with the C-Class sedan. The look is what you'd call familial. The "organic" dual headlamps framing the crossbar grille speak pure Mercedes. But the overall look is more aggressive. The coupe appears to stand higher on its haunches, as if waiting to launch into motion. The rear end is the car's most controversial, and least Mercedes-like, feature. If anything, it has an almost Japanese look, as if borrowed from the Asian member of the DaimlerChrysler family, Mitsubishi.

But appearances only carry you so far, especially when you're attempting to enter a sporty, performance-oriented segment long dominated by Mercedes' Teutonic rival, BMW.

Climbing into the hills from the coast city of Nice, the roads twist and turn madly, as if dribbled onto the landscape by a paver's Jackson Pollock. The C-Class coupe's suspension proved unexpectedly taut, much stiffer than the traditional Mercedes, but not at all harsh. The coupe can handle corners without jarring your fillings loose. Steering is precise and predictable, though a little bit lighter than a comparable BMW. One could almost describe the coupe's road manners as BMW-Light, balancing its performance feel with a level of comfort and refinement that clearly maintains the Mercedes-Benz brand character.

Mercedes has announced that the C-Class CoupÈ will carry a sticker price of $24,950.

A decade ago, most analysts were ready to write off another German brand. The unsubstantiated and eventually disproven "un-intended acceleration" flap had all but crushed Volkswagen's Audi division. By 1992, sales had fallen 80 percent from a peak of 76,000, and "we were very seriously considering leaving the market," admits Gerd Klaus, the ever-ebullient executive rushed to North America to try to turn the brand around. His strategy could be dubbed the "3 Ps." Audi slashed prices, improved performance and launched an array of new products, starting with the compact A4 sedan. The reception was cool at first, but slowly the automaker began winning over converts.

In the decade since, Audi's lineup has been fleshed out with an assortment of models, ranging from the ultraluxurious, aluminum- bodied A8 to the new Allroad crossover vehicle. Yet the A4 remains the heart and soul of Audi's American offerings. The sixth-generation model hits showrooms in October and should prove a surprise to longtime fans. Like its predecessor, the 2002 A4 is one of the most stylish offerings in the affordable luxury segment, but with better ride quality and more interior space. The new A4 also introduces the first CVT, or continuously variable transmission, offered by a luxury automaker.

A CVT eliminates conventional step gears, constantly running the engine at optimum speed. Audi officials insist it will deliver the fuel economy and performance of a manual, with the smoothness of an automatic. The CVT will be available initially only on the front-drive A4, though a version for the all-wheel-drive A4 Quattro is under development.

While the 3 Series, C-Class and A4 dominate the affordable luxury segment, plenty of new players are trying to compete, and besides Jaguar. Take Volvo, another member of Ford's Premier Automotive Group. Over the years, few products have seemed more familiar than those from the Swedish automaker. Even those with weak eyesight could spot the brand's boxy silhouette from a thousand yards. Those drawn to Volvo products wanted simple, safe, reliable transportation. Styling was superfluous. The first hint this could change came with the introduction of the top-line S80 sedan nearly three years ago, quickly followed by the C70 coupe and the convertible.

Mere aberrations? Not at all. Though the recently added V70 wagon maintains the traditional box shape, the latest addition to the lineup is clear proof that Volvo is designing to a different drummer these days. The S60 sedan shares the sleeker styling "vocabulary" introduced with the S80. At first glance, you might mistake the two vehicles, which share platforms and numerous components. But some notable differences permit Volvo officials to use terms like "performance" and "fun-to-drive" to describe the S60 -- and not have to cross their fingers behind their backs.

Lexus is another automaker aiming to capture the young-at-heart buyers fueling the affordable luxury segment's growth. Despite its success -- Lexus is routinely one of the nation's best-selling luxury brands -- its products have tended to appeal to an older buyer who might, in the past, have opted for a Buick or Cadillac. Hip, Euro-oriented buyers "never stepped inside a Lexus store before," admits Bryan Bergsteinsson, who served until a year ago as Lexus general manager. "Maybe they drove by in a BMW or Acura and looked inside to see if their dad was inside waiting for service."

The IS300 is designed to get them to stop. The sedan is priced to be affordable, by luxury segment standards. That doesn't mean cheap. Far from it. The IS300 doesn't have quite as opulent a feel as an LS430, but it does maintain the incredible fit-and-finish that's a Lexus trademark. And with 215 horsepower, it is one of the peppiest products in the segment.

The other Japanese premium brands are weighing in as well. Long cast in the shadow of its Asian rival, Nissan's Infiniti brand is betting on some big growth of its own thanks to the updated and upgraded I35. The new-for-2002 sedan gets a big bump in performance over the old I30, thanks to a bigger 3.5-liter V-6 pumping out 260 horsepower.

It's getting close to facelift time for the Acura TL, which has helped Honda's upscale division gain ground over the last couple years. For those on an especially tight budget, the automaker introduces the all-new RSX for 2002, a replacement for the long-lived Integra. With a projected price between $20,000 to $25,000, it technically doesn't fit into the affordable luxury segment, though it's a significantly more luxurious set of wheels than the old Integra.

You might notice the absence of a couple names from this list. Until recently, the Big Three domestic automakers largely ignored the emergence of the affordable luxury market. Lincoln scored a modest success with its first entry, the LS, though it's really a larger model than most of the other cars in this segment, physically on par with the BMW 5 Series. The sedan's big selling point has been price ($32,290), though a mid-cycle update will aim to add more refinement to the LS, which Lincoln hopes will increase its appeal to import-oriented buyers.

Cadillac, meanwhile, took a critical drubbing for its Catera. The sedan was based on a downmarket design sold in Europe under General Motors' Opel brand. It was stodgy and slow and simply not up to the high standards set by the segment's standard bearers.

That could change dramatically this fall with the introduction of a new vehicle. Originally called the Catera Touring Sedan, the 2002 model will now drop the Catera name and simply be called CTS. If Cadillac has been guilty of playing it safe in recent years, that certainly won't apply here. The sedan will introduce the world to a new styling theme as radical as Caddy's finned wonders of the late 1950s. Dubbed Art & Science, it's the polar opposite of Jaguar's soft sensuality. The sharp-edged CTS, explains GM design director Wayne Cherry, "will look as if it were machined out of a single billet of steel."

Even the most avid proponents admit this is a risky strategy, especially since Cadillac plans to redo its entire lineup in the Art & Science mold by mid-decade. CTS will be going up against some of the toughest competition in the auto industry. If the new sedan succeeds, it well may set in motion the GM division's long-awaited revival. If CTS flops, Cadillac's future will be uncertain at best.

The CTS, by the way, will be loaded with an assortment of high-tech features, including an expanded version of the OnStar system. It will offer, among other things, real-time traffic alerts. In-car Internet access is likely to be added. Considering the affordable luxury segment is dominated by young, tech-savvy buyers, such features are becoming as important as wood and leather. The new Jaguar X-Type's climate control, audio and navigation systems can be operated from its touch-screen video display or by voice control. It's the most sophisticated system on any model in the Jaguar lineup. Audi, meanwhile, chose the A4 to debut its new CVT, which will eventually migrate only to the marque's more expensive models.

The bottom line, notes Jacobs, is that the affordable luxury segment offers surprisingly high value -- higher than many top-line models. In Jaguar's case, O'Driscoll admits that this could lead some potential customers to downgrade, from the more expensive S-Type to the new X-Type. The better these products get, the more the substitution. So that's going to raise the bar for the next generation of high-line vehicles, such as the Jaguar XJ, the BMW 5-Series and the Mercedes S-Class. To remain competitive, these offerings will need more than just a fancy hood ornament. They'll have to define the cutting edge of automotive refinement, design and technology. Otherwise, why would you spend the extra money?

Paul A. Eisenstein publishes the auto e-zine, The Car Connection,