SUVs and trucks may be fuelling much of Canada’s recent string of record vehicle sales, but don’t discount luxury sedans – they’re also gaining in popularity among drivers.
Overall sales are on track for another strong year in 2018, according to the Canadian Auto Dealers Association (CADA), with expectations that they’ll closely match last year’s total of two million sold. That was the first time this threshold had been crossed, as well as the fifth consecutive record sales year.
Light trucks made up nearly three-quarters of the 2017 total, while entry-level and mid-range passenger cars had declines. Luxury brands such as Audi, BMW, Mercedes-Benz and Porsche, however, had a record year – a performance they’re expected to repeat in 2018.
The luxury segment has gone through higher growth than other categories over the past five years or so, going from 10 per cent of the market to about 12 per cent. Better economic fortunes since the 2008 financial crisis have played a big role.
“That’s a relatively big jump,” says Michael Hatch, chief economist for CADA. “The types of consumers who tend to buy these vehicles, they’ve been insulated from some of the economic swings.”
Lower costs are also driving consumers toward higher-end cars. Luxury manufacturers have released less expensive vehicles in recent years, putting their brands within reach of a greater number of buyers. Audi’s A3, BMW’s 2 Series and the Mercedes B-Class, for example, all start at under $40,000.
“It’s more in reach for people than it was in the past,” says Michael Ferreira, director of national sales for BMW Group Canada. “One of the differentiators that separates the premium segment as a whole is the ownership experience, the shopping and buying experience, and the attainability of a luxury sedan, more than it’s ever been.”
Leasing has also made a comeback, which again has widened luxury brands’ appeal. In 2007, leases represented nearly half the market, according to CADA, before dropping to just 10 per cent in 2009 as a result of the financial crisis. Now, the rate has climbed back up to around 30 per cent, with luxury cars accounting for a good portion of that.
Longer leases are also further lowering costs, at least in the minds of buyers.
“The reality of consumer psychology is that they don’t care what the sticker price of the vehicle is. What they focus on is the monthly payment,” Hatch says. “Leasing allows the dealer to bring that price down.”
Technology is also playing a role. Whether it’s various forms of electrification, autonomous functions, safety features or entertainment and advanced navigation systems, luxury sedans typically pack the newest bells and whistles first.
Not only is that attracting buyers, it’s also encouraging faster trade-ins for those drivers who aren’t necessarily concerned about price.
“That customer either likes to change their car every three or four years or, if they’re on a car allowance, they like to keep it up to date,” says Brian Murphy, vice-president of editorial and research at Canadian Black Book.
The automakers themselves say the luxury car appeal – especially when it comes to sedans – extends beyond just price and affordability. They’re status symbols that don’t evoke the same negative connotations that SUVs do, where they’re more fuel efficient and less demanding of space.
“The sedan is increasingly becoming a statement vehicle,” says Matthew Wilson, national manager of product planning for BMW Group Canada. “To a certain degree, it’s like a sports car.”
Despite that, industry analysts expect the two segments – luxury and SUV – will increasingly blend together, at least in North America. European manufacturers are having to shift away from their historical focus on sedans in order to cater to the obvious truck-hungry tastes of Americans and Canadians.
That means they’re having to expand their SUV offerings, such as Mercedes GL class, Audi’s Q Series and BMW’s X series, which accounts for nearly 60 per cent of sales in Canada, according to the company.
“The European brands weren’t necessarily developing products specifically for North America, but that’s changed now because the North American market for luxury is so big,” Murphy says. “It’s going where the customer is – the build-it-and-they-will-buy-it approach. Luxury is no exception to that.”