Franz Jung, the new president and CEO of BMW Group Canada, takes one look at the BMW X3 crossover and says, “We can do better.”
What he means is that BMW AG, the parent, can help provide an X3 with more “substance” and BMW in Canada can support it better in the marketplace. BMW Canada's No. 1 dealer, Brian Jessel of Brian Jessel Motors in Burnaby, B.C., agrees.
“The problem is, they gave up on it; they stopped supporting it,” says Jessel, whose flagship store sold 1,644 BMW vehicles last year – and nearly 900 more certified pre-owned cars.
Jessel wants BMW to put more muscle behind the X3, but in a tough market – where BMW Canada is pushing monthly payments more than design, technology, quality, safety, style, performance and cachet combined – company resources are stretched thin. Globally, the parent company is struggling to find profits and reverse a sales slide that matches the global economic woes.
But the fact is, cars – even luxury cars – are sold one at a time. And Jessel thinks that with a little help from above – from Munich – the X3 can be a much bigger player.
“It's a great car,” he says.
Ah, but X3 sales last year were down nearly 23 per cent, and slipped to No. 7 overall among luxury sport-utes. Not only is the X3 feeling the heat, but BMW, the No. 1 luxury brand in Canada, can also feel the hot breath of its competitors.
Mercedes-Benz, in particular, is charging hard in a highly competitive market. Mercedes' sales last year were up 26.4 per cent, while BMW's slipped 3.3 per cent. Of the top six luxury brands, only BMW lost market share last year.
Jung says he believes Mercedes-Benz is “buying” market share by selling some vehicles at unprofitable prices and supporting others with inexplicably low cut-rate deals. But BMW, too, is offering deals on its models.
“I don't want to give up [luxury] segment leadership in Canada, but I do not really understand the approach of our colleagues from Stuttgart,” Jung says. “I do not really think there is profit there. I do not want to play this [discounting] game, but I do not want to give up leadership.” Quite the dilemma.
The X3 is a good example of what is happening in the bigger luxury picture in Canada. When it arrived in 2004 as a lower-priced, car-based crossover riding on the basic bits and pieces of the 3-Series, the X3 almost instantly became a strong contender in a market with only a handful of rivals – Lexus RX, Mercedes-Benz M-class, Volvo XC70 were the others in its price range among the top 10 premium SUVs.
Now, consumers have all sorts of new choices, in addition to what was around five years ago. Audi is just launching the Q5, Mercedes has the new GLK, which is selling like gangbusters, and there are other relatively new players such as the Acura RDX, Infiniti EX35 and Lincoln MKX. Of course, the established models have received updates, too.
“We now have more competitors than ever before,” Jung says.
And they are all chasing a shrinking market with more products. Last year, the luxury segment did not escape the bigger global economic crisis and that is continuing this year. Luxury sales in 2008 fell to 8 per cent of the total market.
According to analyst Dennis DesRosiers of DesRosiers Automotive Consultants, the luxury market peaked in 2006 with 8.5 per cent of the total new-vehicle market. That was the end of a steady rise from 3.1 per cent of the market in 1990.
All that growth was the result of what you might call the “democratization” of the luxury segment. That is, small luxury cars now represent about 50 per cent of all sales, whereas in 1992, some 42 per cent of the luxury market was comprised of high-priced luxury models, DesRosiers says.
As well, in 1990, there were no luxury SUVs at all, while last year they made up 34.1 per cent of the segment. The vast majority of those premium SUVs are so-called entry-luxe models like the X3, Q5, GLK and EX35. Yet even as models have come down in price, even the most affordable ones come loaded with gee-whiz features such as the EX35's around-view camera.
