U.S. sales of luxury brands through July outpace overall market

The new Audi A3 has helped the brand achieve a 13 percent U.S. sales increase through July.
Luxury market
Most luxury brands are growing faster than the overall U.S. market (ranked by year-to-date percentage sales increase)
Land Rover14%
Total U.S. light-vehicle market5%
Source: Automotive News Data Center
*Excludes Sprinter

Memories of the recession have all but disappeared in the rearview mirror for Mercedes-Benz, Lexus, BMW and most other luxury brands, with their sales rising considerably faster than the rest of the industry this year.

New, lower-priced nameplates, attractive leases and rebounds in wealthy consumers' stock portfolios are among the reasons luxury vehicles account for almost 16 percent of the industry's growth in 2014, even though they represent just 10.8 percent of the overall U.S. market.

Demand for luxury cars, in particular, is rising as sales of mass-market cars stagnate. Luxury car sales rose 6 percent through July, compared with a 1 percent gain for all car sales. (Calculations do not include sporty and exotic cars.)

That trend held up in July. With overall U.S. sales up 9 percent, most luxury brands were up by double digits. For instance, the leading luxury brand in July, Lexus, was up 19 percent, followed by No. 2 seller Mercedes-Benz with a 15 percent increase and BMW brand, up 10 percent. But the good times weren't universal: Some luxury brands, such as Cadillac and Acura, slumped. (See chart, Page 65.)

The seasonally adjusted annualized rate of sales hit 16.5 million in July, slightly below the June rate of 16.9 million, which was the highest in eight years.

U.S. sales by luxury brands should easily top 1.8 million this year, a mark reached only three times before, and they're even on pace to surpass the all-time high of 1.83 million set in 2007.

"Every month we do better than the month before," said Brian De Cook, sales manager at Mercedes-Benz of Tucson in Arizona. "We just don't have a model that doesn't sell. It's a hot, hot brand."

Luxury sales have been helped by -- and contributed to -- record-high lease rates. In the first quarter, 30.2 percent of all financed new vehicles were leased, according to Experian Automotive, compared with 24.4 percent just two years earlier.

For luxury vehicles, analysts say 50 to 60 percent are leased, which creates a steady flow of returning customers in addition to those newly able to afford an upscale brand. In recent months, dealerships have been getting a flood of customers coming off three-year leases that began in the early stages of the economic recovery, in addition to people ready for their third two-year lease since the recession.

"It's not as if they're going to get out of a 5-series lease and get into a Toyota Camry," said Alec Gutierrez, senior analyst with Kelley Blue Book.

For those who don't lease, banks' willingness to extend six- and seven-year loans can mean significantly lower monthly payments on higher-priced cars.

The average loan climbed to a record 66 months in the first quarter, Experian said.

Luxury dealers are seeing the return of some business owners or upper-level managers who didn't want to pull up to the office in a flashy new Mercedes while their companies were slogging through tough times and job cuts.

"Those who were most sheltered from the impact of the downturn may have held off for a while," Gutierrez said, "if not to watch out for their own balance sheet but to watch out for the perception it created. Now that concern is largely out the window."

Asbury Automotive, which gets more than a third of its new-vehicle revenue from its luxury-brand dealerships, posted record second-quarter profits, up 33 percent from a year earlier. Asbury said its stores that had been open for at least a year sold 13 percent more luxury vehicles than a year ago, compared with a 4 percent gain for midline vehicles. The group's gross profits increased 17 percent for luxury vehicles and 9 percent for others.

De Nysschen: Can he give Caddy a lift?

Only three luxury brands, Cadillac, Acura and Volvo, have posted sales declines in 2014. Johan de Nysschen, the former head of Audi and Infiniti, took over last week as president of Cadillac, which was one of the industry's fastest-growing brands last year and wants to rekindle some of that momentum. The ATS and XTS, two new nameplates that were a big part of Cadillac's 2013 surge, are both down more than 20 percent this year.

Audi's strong sales contrast with a down year for its parent company's mass-market Volkswagen brand. Nearly all of Audi's increase is attributable to the new A3, which has a starting price of about $30,000.

The A3 and its rival from Mercedes, the CLA, have stretched the size of the luxury market by targeting buyers who want the cachet of those brands in the same general price range as a family sedan.

Crossovers also are riding high, accounting for nearly half of this year's gain in luxury sales. Among the biggest contributors to that increase are the redesigned Acura MDX, Lexus RX and the Mercedes M class.

Nora Naughton contributed to this report.

You can reach Nick Bunkley at nbunkley@autonews.com -- Follow Nick on Twitter: http://www.twitter.com/nickbunkley