March 16, 2015 - 12:01 am ET
Florida auto dealer Bill Wallace routinely stages special promotions at his Cadillac and Lincoln dealerships to lure BMW and Lexus owners in for a test drive -- offers such as a free dinner for two or Starbucks coupons.
"We get the lowest response on those types of promotions of anything we do," he says. "But we continue to bang away at it."
For Wallace and other dealers who sell luxury brands such as Cadillac, Lincoln, Acura and Infiniti, banging away is a fact of life. Try as they might, those second-tier brands, with the exception of surging Audi, have struggled to make inroads against the powerful triumvirate at the top: BMW, Mercedes-Benz and Lexus.
Dealer Bill Wallace: "We continue to bang away at" luring BMW and Lexus owners.
The truth for aspiring brands on the outside looking in is that the rising luxury tide is not lifting all ships equally. Luxury brand sales, up 6.4 percent in 2014, grew faster than the mass market, but the top three brands plus Audi enjoyed the lion's share of the gains.
Combined, BMW, Mercedes-Benz and Lexus accounted for more than half of all U.S. luxury brand sales last year. With luxury sales projected by IHS Automotive to grow from 11.4 percent of the market last year to 12.7 percent in 2016, the stakes for aspiring brands are high.
Though Acura and Infiniti sales grew in 2014, they did not keep pace with the luxury market as a whole, but the two Japanese brands have gotten off to a fast start in 2015. In 2014, Cadillac saw its share drop more than 1 point to 9.1 percent as its sales dropped 6.5 percent.
The big three brands enjoy an enviable combination of advantages -- deep product lineups, global reach, strong residual values and rock-solid brand images -- that aspiring brands cannot match.
Cross-shopping data show that customers of the aspiring brands are more likely to defect to one of the big three or Audi than the other way around.
Not since 1998 has any brand other than BMW, Mercedes and Lexus topped the U.S. luxury market in sales. That year, Lincoln led the field. Before 1998, Cadillac held an unbroken grip on the top spot going back to before 1970.
Since Mercedes grabbed the top prize in 1999, imports have dominated the playing field. Lexus ruled 11 straight years from 2000-10. These days, the top three remain locked in a bitter struggle for the luxury title. BMW has taken the crown three of the last four years but is third so far this year, trailing Mercedes and Lexus.
Ambitious Lexus is breathing down the neck of Mercedes-Benz in a bid to regain the top spot it hasn't held since 2010. Through February, Lexus sales have jumped 26 percent, passing BMW to move into second place behind Mercedes. Like its rivals, Lexus is basing its growth on an aggressive product offensive.
"If I did not want to resecure that luxury leadership position, then my boss probably put the wrong person in this job," Jeff Bracken, Lexus general manager, said at the Detroit auto show. "It's important. No question about it."
Mercedes has been equally bullish. "With SUV sales up 22 percent, we expect our momentum to continue as new or redesigned versions of almost all our light trucks hit the market in the next year," Steve Cannon, CEO of Mercedes-Benz USA, said in a March 3 release.
In 2014, BMW topped the U.S. luxury field with an 18 percent share, followed by Mercedes Benz with 17.5 percent and Lexus with 16.5 percent. From there, it's a substantial drop to Audi at 9.7 percent and Cadillac with 9.1 percent. Together, the top three accounted for 52 percent of the luxury market. No brands come near that kind of dominance in the mass market. The top three mass-market brands -- Ford, Chevrolet and Toyota -- accounted for 43.8 percent of nonluxury sales in 2014.
So dominant are the three top luxury brands, they're almost playing in a different segment, says Tom Libby, analyst for IHS Automotive.
When Lexus introduced its NX compact crossover in 2014, sales of the BMW X3 and Mercedes-Benz GLK declined, while sales of competing vehicles from "striver" brands weren't affected, he says.
"One could conclude there's a lot going back and forth between those brands," says Libby. "When one of those brands brings out a strong entry, it does not affect the strivers. So perhaps it's a separate market."
Says Chris Lemley, who owns two Massachusetts Lincoln dealerships: "If you look at sources of sales and defections, those four brands [including Audi] are cannibalizing each other for the most part."
The top three brands enjoy higher loyalty rates than the brands fighting to join the club: 58 percent of Mercedes-Benz owners who went shopping in 2014 stayed loyal to the brand, followed by BMW at 53 percent and Lexus at 52 percent, according to IHS data. Among other brands, only Lincoln hit the 50 percent mark.
Chris Sutton, vice president of auto retail for J.D. Power and Associates, says customers of the top three luxury brands cross shop the other two far more than they do the brands in the second group, with the possible exception of Audi.
"Among customers who bought a BMW in 2014, 21 percent visited an Audi dealer, 20 percent of them visited a Mercedes dealer and 14 percent visited Lexus," Sutton said. "Everything after Lexus is in single digits."