Tesla Cracks The Luxury Code Others Find Difficult

The 2020 Toyota Corolla is equipped with an array of electronic safety and driver aids that would astound car buyers of just a few years ago. The Kia Optima and Hyundai Sonata can be equipped with fully leather-trimmed interiors complete with heated and cooled front seats, reclining rear seats and multi-zone automatic climate control. The all-electric Nissan Leaf and Chevrolet Bolt don’t simply feature futuristic powertrains supplied with state-of-the-art batteries, but also contain a broad array of readouts, driver assists and telemetry that are unheard of in a conventional car. Hyundai has broken into the luxury-brand realm with its Genesis brand, while Kia tempts idiosyncratic luxury buyers with its K900, a BMW 7-Series competitor.

“There’s a lot of premium options in content in mainstream brands or at least what was premium content really only a few years ago,” said Tyson Jominy, VP, Power Information Network operations, J.D. Power, a key data analyst for the firm. “It’s certainly proliferated throughout the industry at a very rapid rate.”

It wasn’t long ago that features like giant infotainment screens, advanced driver’s assist features, leading-edge safety systems and creature comforts like leather-covered, heated-and-cooled seats were reserved for high-end luxury vehicles. But as competition has grown ever more intense, manufacturers are not waiting to equip their newest mainstream-brand models with top-shelf equipment.

“In short, trickle down is dead,” Jominy told forbes.com.

As examples, he pointed to advanced safety features like blind spot monitoring (BLIS) and collision avoidance. In the 2015 model year these features were in somewhere between 5 and 15 percent of new models built.  In just four years they’re now in 40 to 60 percent vehicles, he said. Integrated safety suites like Toyota Safety Sense have taken some of the features that just a few years ago almost didn’t exist to become standard equipment on mainstream cars.

“There’s no trickle down here,” he said. “This is just instant change.”

In an era in which mainstream sedans like Honda Accord, Toyota Camry and the soon-to-vanish Chevrolet Impala boast feature sets that rival those of similar-sized Audi, Mercedes-Benz and BMW models, it is hard to determine which cars are true luxury cars and which cars are pretenders to the title. But according to the experts on the subject to whom we spoke, there are still delineations between luxury and non-luxury cars. Importantly, consumers care about those differentiators, and brands that successfully defend and enhance their luxury positioning stand to reap continued benefits, while the pretenders will suffer the consequences.

One obvious differentiator is brand. Take two identical vehicles equipped exactly the same way and put a luxury brand on one and a non-luxury brand on the other, and the luxury-brand vehicle will command a higher price. The reason: consumers, in general, see value in a luxury brand versus a non-luxury brand even if all the other product attributes are equal.

“In my mind, ‘luxury’ begins with brand reputation/show-off value: Rolex versus Timex, Cadillac versus Chevy, Mercedes-Benz versus Kia,” said Gary Witzenburg, long-time auto journalist and North American car of the Year juror. “But the luxury brands must continually strive to live up to those reputations and must succeed.”

Jominy agrees that failing to meet elevated expectations is a potential trap for luxury brands. Despite the fact that upscale brands are valued, he said that if the vehicle attributes do not live up to the upscale brand’s expected standards there will be consumer backlash. He mentioned the long-gone and unlamented Cadillac Cimarron as an example of this phenomenon.

“You [can] have a premium-badged vehicle and it doesn’t quite measure up, and at the same time you can have mainstream products that are for all intents and purposes very luxury products,” he said. “I think it comes down to authenticity. Nobody thinks that as a brand Chevrolet and Porsche compete with each other yet Corvette, based on its attributes, competes with the entry-level 911.”

Corvette, however, might be viewed as a sub-brand with a higher brand perception than Chevrolet. Further, Corvette has another attribute that can be an important differentiator in determining what the consumer sees as a premium or luxury car — heritage. You can’t buy 100 years of history no matter how hard you try.

In the realm of heritage, the European luxury brands seem to hold all the high cards.  When the Japanese luxury brands — Acura, Infiniti and Lexus — were introduced 30 years ago, they struggled mightily versus the rich history of Mercedes-Benz, BMW and, to a lesser extent, Audi.  Among high-end sports cars, Ferrari, Aston Martin, and Lamborghini continue to have a leg up versus newer contenders even if those new makers like Koenigsegg offer equal or better performance. Now Hyundai has approached the luxury market with a two-pronged approach. It has launched a separate brand — Genesis — to compete in the luxury space while also offering what many would describe as a luxury sedan, the K900, from its decidedly mainstream Kia brand. In the face of the heritage advantages of the German brands, the effort faces strong headwinds.

“When your competitors have photos winning Le Mans or winning the Mille Miglia 80 or 100 years ago it’s hard to compete with that level of history,” Jominy said.

Another attribute that true luxury vehicles have that pretenders don’t is a bit harder to describe in a word, but we might call it “explainability.” As the J.D. Power industry analyst puts it, you don’t have to explain to your neighbor what the Tristar emblem or the BMW propeller emblem is.

“I mean everyone knows these,” he said. “But when you have something that isn’t quite recognized you know it’s going to take a lot more conversation in convincing your neighbor about what you bought.”

Having your neighbor recognize that you purchased a luxury car without having to explain it is an attribute successful luxury cars share. Cars that don’t benefit from that immediate shorthand will likely struggle in comparison.

Does this mean that new or existing brands can never break into the elevated luxury-car sphere? No, it simply means getting there will be difficult and will take innovation. Tesla Motors is a prime example of this. The magic that it has been able to capture in becoming a widely acknowledged luxury brand stems from its advanced technology and from its charismatic leader, Elon Musk.

“They hit on the whole tech idea that the car is more about technology than anything else, and that certainly helped differentiate them and build their brand as a luxury product,” Jominy said. “But as mentioned the powertrain is and remains very expensive in any these vehicles, and so that’s where we really see the majority of easy action going on.”

In other words, if you want to establish yourself as a luxury brand, you are well-advised to offer innovation in powertrain. In the absence of innovation, authenticity, and heritage, attaining luxury-car status will continue to be a very difficult road.