Consider Irene Yaymadjian, a Ph.D. candidate who wanted a step up from her Mini Cooper, yet didn’t want to bust her grad student-sized budget. The 29-year-old psychotherapist in Beverly Hills, Calif., considered buying a Mercedes, but said the model she test drove “felt like I was in a Honda.”
Yaymadjian ultimately settled on a black A3 with black leather seats, taking delivery in April for about $38,000.
“I wanted a nice car but something that won’t put you under,” she said.
Seeking younger drivers on a budget is risky. The market is crowded, and carmakers run the risk of diminishing a premium brand by encouraging comparisons with mainstream models. A buyer willing to spend $30,000 on a car can now add Mercedes and Audi to a shopping list that includes the Ford Fusion, Chevrolet Malibu and Honda Accord.
Another challenge is creating measurable distinctions between the growing number of market segments, Kevin Tynan, an analyst with Bloomberg Industries, said in an interview. A fully loaded entry-level car may scarcely differ from an auto in the next-highest category, risking cannibalization.
Moving into a lower category “requires the companies to backfill with smaller and less expensive derivatives of what used to be the entry-level models,” Tynan said. “The trouble is, they have to create enough distance between the old and the new and the line between less-expensive and cheap is not very thick.”
Audi took a different path to the entry-level market than Mercedes, loading its base model A3 with a sunroof and leather seats. The CLA comes standard with a solid roof and faux-leather seats.
The A3 has won accolades, comparing favorably to the CLA.
Car and Driver called the A3 a “splendid sports sedan” that just happens to be “small and affordable” and said “Mercedes-Benz might have beaten Audi to the small-sedan punch, but Audi might have delivered the knockout.” Consumer Reports praised the CLA’s looks, but said the ride was stiff, brittle, loud and “falls short of a typical Mercedes.”
That’s the kind of criticism luxury carmakers hoped to avoid when they introduced some of the most affordable models in their histories.
The A3 sold for an average price of about $32,530 in June, according to Edmunds, compared with $38,571 for the CLA, which has slipped from $39,542 in January. Both cars start at $29,900.
Audi sold 16,867 vehicles in June, its 42nd straight U.S. sales record and second-best month ever. Year-to-date, the automaker has posted sales of 84,349, a 14 percent gain. Mercedes sold 151,624 cars in the same period, buoyed by demand for its E- and S-class models.
Audi also trails Toyota Motor Corp.’s Lexus, which has increased sales 17 percent through June to 138,689 this year and said it won’t offer a sub-$30,000 model. Even so, Audi is making steady gains winning new customers as it competes at the low end with more-bang-for-the-buck approach.
Audi should reach its 2020 goal of 200,000 U.S. sales “a good deal sooner,” Scott Keogh, the brand’s U.S. president, told reporters in March in Mountain View, Calif. Audi sold about 158,000 vehicles in the U.S. last year.
Sales of luxury autos in the United States will grow 15 percent by 2018, Keogh said. Luxury’s share will increase to about 11.6 percent of U.S. vehicle sales from 10.5 percent, with much of that growth from entry-level models, Keogh said.
Mercedes has an advantage in that its parent can resort to discounting and other ways to incentivize buyers, said Toprak of Cars.com.
“Mercedes buyers respond to lease deals and if Benz goes very generous on them, they may attract additional buyers,” he said. “As it stands now, Mercedes always has that weapon in their arsenal. They have a lot of resources.”
Even so, Audi has the loyalty of younger buyers on its side. The median age of an Audi buyer is 51, compared with 52 for BMW, 56 for Mercedes and 62 for Lexus, according to Strategic Vision.
Millennials responding to an Autotrader.com survey listed Audi as the brand that’s “most reflective of their personality,” followed by Honda, Mercedes, Toyota then BMW, Krebs said.
“What is clear from when we talk to millennials is they are favorable to luxury brands, and they always bring up Audi as a brand they aspire to,” she said.