Price, size, fancy features no longer define luxury cars

LOS ANGELES -- An avalanche of ads featuring luxury cars decked with huge red bows, and some without, all send the same message: Give your loved one a fancy car for the holidays.

And enough people do it that December is usually a strong sales month.

But you begin to wonder what defines a "luxury" car when you see that one Lexus red-bow TV ad features the CT 200h hatchback, which starts at a tick less than $30,000. You can buy well-equipped versions of such mainstream sedans as Ford Fusion, Honda Accord, Toyota Camry for $30,000 to $35,000.

What makes one vehicle "luxury" and another one not? USA TODAY invited four luxury-car executives — representing Asian, European and Detroit makers with widely varying approaches to luxury selling — to a roundtable session exploring the new definition of luxury.

They agree that traditional measures, though still in the mix, matter less. But they disagree on what has taken the place of the old standards that once clearly separated luxury cars from family buggies.

"The definition of luxury changed. Luxury was size, space, comfort, presence," says Don Butler, marketing manager for General Motors' Cadillac brand. Now, luxury is defined more by "the feel of the vehicle," he says.

"The difference is not just price," says Brian Smith, vice president in charge of marketing for Toyota's Lexus brand. He says luxury has to do with the overall experience — the car, the dealer, the reputation of the brand, the satisfaction of owning a certain brand.

"Emotion" distinguishes a luxury car from a mainstreamer, insists Ludwig Willisch, president of BMW of North America.

Time saved and hassles reduced are the essence of a luxury appeal, says Steve Shannon, vice president of marketing for Hyundai Motor America.

To some extent, the definitions of luxury recall the famous description of pornography: You know it when you see it.

The four executives met here to answer questions from the USA TODAY auto team about the challenges of selling luxury cars at a time when $20,000 economy cars offer heated front and rear seats, automatic parallel parking, voice controls and "connectivity" that links you to seemingly everything but the planet Mars.

The four brands at the table cover a wide range within the luxury segment, from established to newcomer, triumphant to struggling, domestic to import.

They face different hurdles as they work their way back from a ruinous recession in 2009. Those differences help shape their views.

•Cadillac is a well-established name, but the image was tarnished by watered-down models, such as the infamous Chevrolet Cavalier knockoff called Cimarron in the 1980s.

"I would be foolish to say the Cimarron wasn't a mistake. It was. But having said that, we will never shortchange the product again," Butler vows.

GM continues to spend robustly on vehicles and marketing to keep Cadillac's luxury image intact. A new, larger XTS sedan was unveiled at the auto show here and will go on sale in the spring. A compact ATS sedan joins Caddy's limited lineup next year to broaden the product array.

Like all luxury makes, it's also fending off increasingly feature-packed models from more mainstream brand names. That includes an unexpected internal rivalry with GM's Buick brand, fast moving toward a luxury image.

"If you look at the Buick lineup, some vehicles definitely could be classified as luxury," Butler says. But the Buick brand overall is more entry-level luxury, he says: "There are tiers, right?"

•Hyundai often is thought of as a bargain-price brand, which makes it harder for the company to be convincing about its high-end Equus sedan, starting at about $60,000, and Genesis sedan that runs from about $35,000 to $47,000.

The South Korean maker's task of differentiating mass-market models from higher-class cars is tougher because it has been a successful leader at "adding unexpected content in mainstream cars," Shannon says.

Its Elantra compact sedan is the one that offers those heated front and rear seats.

Luxury specialist Pam Danziger, president of Unity Marketing and author of the book Putting the Luxe Back in Luxury, calls it "blurring the line between mass and class." She says there's a lot of it going on the auto industry, making meaningful differentiation tricky.

With Hyundai, the higher-end cars even share the brand name and showroom with mainstream models such as Accent, Elantra and Sonata, undercutting the exclusivity — unlike, for example, Lexus and Toyota.

•Lexus, the top-selling luxury brand in the U.S. from 2001 through 2010, has watched sales in the U.S. tumble 16% this year. It lacked hot, new models. The cars it did have were sometimes in short supply because of interruptions from the March earthquake and tsunami in Japan.

Lexus plans nine new or significantly updated models by the end of 2012 and says the supply pipeline from Japan, where nearly all its vehicles are made, is back up to speed.

It hopes to boost its appeal by using the more agile new models to recast the brand as one for driving enthusiasts, more like — though Lexus won't put it this way —BMW.

•BMW seems to have the enviable challenge of keeping up its momentum. Its sales are up 13% this year, according to industry tracker Autodata, and it's either No. 2 in the U.S. luxury market behind Mercedes-Benz or No. 1, if you include sales of the BMW-owned Mini brand.

BMW has a big hit at the moment: the redesigned X3 crossover SUV that's commanding more than window-sticker price and is built in the U.S., so production can quickly be tailored to fit demand.

Still, it has to look ahead to advanced-technology models it believes luxury buyers will demand and to field electric cars and plug-in hybrids without eroding the "ultimate driving machine" cornerstone.

Because they have such different viewpoints, the luxury-car executives disagreed on the importance of many things, though found some common ground.

The role of the dealer

Lexus' good name largely is based on genteel treatment of customers. Smith, not surprisingly, says luxury "is at least 50% the dealership and the experience" there. "The luxury side is, people that want to come in and feel like their needs are met at the dealership … and we work hard at that."

At the other extreme, Hyundai's Shannon believes the time spent at a dealership actually gets in the way of a luxury experience, so Hyundai lets them avoid it. "Equus shoppers needn't even visit the dealership. The car will be brought to their homes or offices for test drives, and picked up and dropped off for service. That is one thing you can't get more of — time."

Butler says that saving time and connecting with the dealer both are part of the luxury vernacular: "We offer vehicle pickup and vehicle drop-off, as well, but there are people that want that relationship with the dealership. They want to know that it's not just a transaction. This person cares about me, this person respects me, this person looks out for me, as well."

Willisch, though reluctant to dismiss the dealer's role, says the cars are most important: "I would rather say, being the purveyor of the 'ultimate driving machine,' that the product is more than 50%."

High-performance appeal

The potential of cars to go fast and handle well is a powerful lure, the luxury executives agree.

Butler says the ATS compact Caddy, coming next year, was a clean-sheet design intended to emphasize the elements of high-performance: "Rear-wheel drive, all-around driving dynamics, all-around performance. And performance not just 0-to-60 (mph), but all-encompassing."

Lexus believes exceptional performance is so important that it's banking on reinventing the brand with better-handling, quicker, crisper-feeling cars.

Hyundai, mainly focused on fuel economy in its mainstream models, isn't shy about putting robust V-8 engines in its up-level cars: 385 horsepower in the Equus, as much as 429 hp in Genesis.

BMW's appeal, Willisch says, is a blend of strong power and good handling — like Caddy says it has and Lexus says it wants.

Does size matter?

Yes. No. Maybe.

Auto researcher analyst Ivan Drury says, "Americans are not alone in equating luxury and size. It's a worldwide notion." But the success of the Lexus CT 200h, a compact hatchback with a gas-electric hybrid powertrain, "shows there is a market for smaller, more-fuel-efficient luxury cars that are distinguished enough and have the right features," Drury says.

Willisch says many owners of the company's popular 3 Series compacts aren't pining for bigger cars. "Their dream is not (to move up to BMW's large) 7 Series. … They would have no problem paying $60,000 for a 3 Series. They don't want a larger car.

"What we will do is expand the (models) within the 3 Series so all these Cadillac guys don't get overexcited" about picking off potential BMW buyers with the likes of the ATS, Willisch says.

Still, says Hyundai's Shannon: "There is an extra level of craftsmanship, refinement and, in some cases, features, and an overall presence and stance that, frankly, size often gives you that is completely unique to luxury cars."

The importance of heritage

Time-tested is a key selling point, but newcomer Hyundai — which rolled out Genesis as a 2009 model and Equus as a 2011 — figures it can cope.

Shannon: "Clearly in the luxury business, provenance matters, heritage matters — and those we don't have."

But, he says, luxury-car fans "are not embarrassed to say they own a Hyundai. We do focus groups, and people think they're in on a secret. There is almost a club of people that hope more people don't find out" that Hyundai sells luxury sedans priced less than rivals.

On the other hand, history can be a trap.

"Our heritage is 109 years," Butler notes. "People think fondly of Cadillac."

Problem is, he says, "Quite often, it's the same way that they think about their grandfather. They love their grandfather, but they don't want to spend a lot of time with him."

In the end, the four agreed that they can style and equip and market their models to perfection, but buyers decide what luxury is and what is worth a premium price.