John F. Martin
The Cadillac ATS at the North American International Auto Show in Detroit, 14 January 2013. The car is GM's model in the battle with other luxury automakers for the under $50,000 market.
Looking to drive in luxury for less than $50,000? Right now may the best opportunity in years to get the model you want at the price you want. Thanks to a combination of aggressive lease deals and more choices for entry-level luxury, Mercedes-Benz, BMW, Lexus and Cadillac, sales for less than $50,000 are soaring.
"The battle among luxury auto brands to capture buyers with models under $50,000 is the fiercest it's ever been," said Edmunds.com's Jessica Caldwell. "Look at all the models out there right now in that price range. They are all very good models, so there are more choices for first-time buyers."
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Edmunds.com crunched the numbers for CNBC and found almost two thirds of the mass-market luxury models sold in the U.S. go for less than $50,000.
As automakers are battling it out with entry-level luxury models, they are pushing the sweet spot to a higher transaction price between $40,000 and $49,999.
One of the main reasons entry-level luxury sales are surging is the aggressive leasing deals being offered by automakers. "It's not uncommon to find leases advertised with monthly payments under $500 or even $350," said Caldwell.
Leasing has long been the preferred method for selling high-end cars. After all, even the wealthy who can afford to buy a $60,000 or $70,000 car, don't care for the idea of paying that much in one lump sum.
What has changed is that luxury automakers are now realizing that they attract a broader base of customers if they can offer entry-level models for under $400 a month. Once the customer is locked in, the luxury brands believe the quality of the cars and the pampering delivered at luxury dealerships will keep customers coming back.
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Caldwell understands the logic, but wonders if the luxury automakers are watering down their brands with low monthly payments. "The real concern is that some customers spend $70,000 on a certain model and then they see a lot of other people driving around small cars from the same brand. Then it doesn't feel so exclusive," she said.
When Cadillac rolled out the ATS late last year, Mark Reuss, president of GM North America, predicted it would be a hit with buyers. He was right. A year later, the ATS is currently the best-selling Cadillac sedan in the U.S., with more than 28,000 sold this year.
The ATS (starting MSRP $33,095) along with the redesigned Lexus ES (starting MSRP $36,470) and the brand new Mercedes CLA-Class (starting MSRP $29,900) join a highly competitive entry-level luxury market. They're getting attention while the BMW 3 Series (starting $32,965) and Mercedes C-Class (starting MSRP $38,200) remain the two best-selling models.
With more models vying for the attention of buyers looking to spend less than $40,000, it's not surprising some mass-market non-luxury sedans like the Nissan Maxima (starting MSRP $31,000) have seen sales drop this year.
Caldwell said the growth in entry-level luxury makes it tougher for higher-priced non-luxury brands, "You know, a lot of buyers are thinking, 'Hey, for a few more bucks I can get a Mercedes or BMW, so why not?'"
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Given the success of broadening their lineups with cars that start under at $50,000, don't be surprised that automakers are planning to roll out more models in that price range. While there are some raising concerns about a flood of leased models hurting residual values two or three years from now, the leasing market remains very strong. The demand is there, especially in certain markets like Miami and Los Angeles where the majority of luxury models sold are through leases.
"I think this will continue for a while," predicted Caldwell. "These are still aspirational brands, and if people can get into one of these cars at the right price, they'll do it."
First published October 15 2013, 1:13 PM