A mantra in the auto industry is that product, product and product are the three most important factors in attracting customers. But something else is helping to keep sales of Canadian luxury vehicles red-hot – prices.
BMW dealers have been advertising 320i sedan leases for $348 a month and $5,600 down. Leasing an Audi A4 sedan will set you back $368 a month with $5,998 up front. Putting $6,000 down and shelling out $385 a month covers the lease on a Mercedes-Benz C250.
Those prices are in the same ballpark as a Toyota Camry XLE ($358 a month with $5,500 down) and a V6 version of the Honda Accord ($346 and $5,000).
So, for about the same amount they would pay for a high-end mass-market car, drivers can move upscale and acquire the cachet, quality and elite service that are – theoretically, at least – associated with a luxury brand.
"The consumer is saying 'I can get more for my dollar within a brand that used to be unattainable for me,' " says veteran Toronto dealer Shahin Alizadeh.
The luxury boom has transformed the Canadian market and will reshape it even more over the next decade. Sales of new luxury vehicles soared 67 per cent between 2001 and 2011 and are projected to grow by another 100,000 vehicles by 2020 from the 148,627 sold last year. If that forecast comes true, high-end autos will represent 10 per cent of the vehicles on the road in Canada by the end of this decade, double the percentage in 2001.
"As Canadians become more affluent, they also aspire to different products, different brands," says Tim Reuss, president of Mercedes-Benz Canada Inc. "The overall luxury segment – even through the crisis – grew."
Luxury auto makers are squeezing mass market companies not only through aggressive pricing, but also by entering segments where they have not competed before, such as small crossovers and subcompact cars.
Baby boomers are well into their high-wealth-generating years and they want distinctive vehicles so they're turning to luxury players, notes industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc.
"That's the maturing of the boomer," Mr. DesRosiers says.
The trend has blessed Mercedes-Benz and its Germany-based rivals BMW Canada Inc. and Audi Canada in particular. Those three companies watched their market share more than double between 2001 and last year.
The competition is growing, however, in such dealership clusters as Burrard Street in Vancouver's Kitsilano district, Heritage Meadows Road in Calgary and along the Don River east of downtown Toronto, where Audi and Mercedes-Benz stores are a couple of doors apart just across the river from BMW's flagship store.
Mr. Alizadeh has turned it up a notch in Toronto by investing almost $20-million to open a Lexus dealership across the street from Mercedes-Benz. The presence of the German brands nearby helped convince him to buy an old Volvo store and transform it.
"I don't think anybody else has spent that kind of money on a standalone Lexus [dealership]" he notes.
In another example of the luxury fever gripping dealers, there is chatter that an Audi store in southern Ontario recently changed hands for eight times earnings, compared with three times earnings for transactions involving mass-market brands.
"If there's a BMW store for sale, or a high-end store for sale, you have to beat the buyers off with a stick," says Michael Lewicki, a partner at Ernst & Young LLP, whose specialty is advising Toronto-area dealers.
The dealerships are on the front lines as the companies slug it out on products, pricing and – increasingly – customer experience.
BMW Canada has taken the unusual step of allowing customer ratings of its dealerships to be made public for any potential customer to see.
That's one way to find out what needs to be done to improve customer service, says Eduardo Villaverde, president of BMW Canada. If customers are unhappy with the way their cars are washed during service, the process can be changed.
The company's dealers spent about $60-million last year, an amount that included the opening of three stores, one in each of Langley, B.C., Barrie, Ont., and St. John's.
Mercedes-Benz is also adding outlets. The auto maker has 52 now and will expand to 60 by the end of 2013.
There's also a flood of new vehicles coming from most of the luxury brands. Among the 12 new or redesigned vehicles arriving this year from Mercedes-Benz are a redesigned B Class in the compact segment and C Class and E Class coupes that will be available for the first time with the company's 4Matic all-wheel drive system.
BMW is far from complacent. The 6 series grand coupe, which Mr. Villaverde describes as a four-door sedan with a coupe design, arrives this year.
By 2014, BMW will be selling its i3 battery-powered small car and i8 hybrid-electric sports car in Canada, he says.