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Indeed, the luxury movement represents the industry's first significant market shift since the introduction of the minivan and the Jeep Grand Cherokee in the mid-1980s. And it suggests that the old model developed by General Motors' Alfred P. Sloan in the early 1920s, which sliced the industry into carefully graded segments and moved consumers up as their income rose, may be headed for extinction. Instead, as automakers lavish more and more attention on a narrower, wealthier band of consumer, the U.S. is moving to a more European marketing model built around sales of luxury cars to the affluent and small, inexpensive shoeboxes on wheels for everyone else.
The rub for American carmakers is that they will not necessarily be the beneficiaries as the number of wealthy boomers expands over the next decade. Experts predict that the gradual drift away from American-made luxury cars toward such European models as Mercedes and BMW will only accelerate. According to Ward's AutoInfoBank, European brands account for more than a third of U.S. luxury-car sales, and Mercedes and BMW are leading with about 10% apiece.
For the home teams, the boom in top-of-the-line sport-utility vehicles has helped expand the market for luxury in new directions and fatten the profits of General Motors, Ford and Chrysler as Motown-made Navigators, Expeditions and Grand Cherokees have amassed the lion's share of the SUV segment. Last year SUVs accounted for 17.7% of overall Big Three sales, up from 12.7% five years ago. But even that segment is under pressure. In Detroit this week BMW is unveiling its X5, a so-called sport-activity vehicle that combines the company's vaunted performance with a light truck's capability. Mercedes' American-made M-Class SUV is already a hit.
Much of the Big Three's luxury lag has to do with changing consumer tastes. The high-end market has detoured dramatically from the posh, living-room-on-wheels tradition of Cadillacs and Lincolns that once defined upper-middle-class status. Today's luxury buyers, guided by the Information Age, are less extravagant, more practical and technologically sharper. "The status symbol used to be 'I've got money,'" says Jim Press, general manager of Toyota Motor Sales USA. "But here in the late 1990s, it's 'I've got good taste.' The days of conspicuous consumption are gone."
In many cases, American automakers are left with the tough work of revamping their luxury cars to appeal to young buyers, while maintaining their hold on older ones who never took to European brands the way their children have. Ford recently unveiled its all-new LS8, a rear-wheel-drive, technologically loaded sedan tweaked and tuned by Jaguar. Chrysler, which has scored a connection to boomers with its Jeep Grand Cherokee, last year launched the 300M, a sleek, import-fighting luxury sedan that competes against such other luxury sedans as the BMW 3 Series and Audi A4. "Our cars became boring, and we lost some ground," says John Sloan, director of DaimlerChrysler's large-car operations in Auburn Hills, Mich. "But our 300M makes you fantasize about driving Route 1 in California."