Premium brands face challenges as incentives rise and trucks rule the day

As 2016 gets rolling, luxury auto sales are slowing, incentives are rising and trucks are dominating.

Though U.S. luxury-brand sales dropped 3.5 percent in January, many luxury-brand executives forecast sales increases for the segment in 2016. But they expect growth will slow even as incentives rise.

Those are among several challenges luxury automakers face. Others:

• Declining car sales in a truck-crazy marketplace. Luxury brands generally rely more on car sales than trucks. Luxury automakers are adding truck production, but not fast enough to keep up.

Demand may have reached a tipping point: Luxury truck sales outpaced luxury car sales each of the last three months, though the segment still sold more cars than trucks for all of 2015, according to the Automotive News Data Center.

• China's slowdown. Vehicles that previously would have gone to China are being redirected to the U.S., putting more pressure on automakers' U.S. units. This has been a factor in rising luxury car inventories, analysts and retailers say.
• Margin pressures and soaring inventories. Retailers are feeling the sting. AutoNation Inc. said it saw a 49 percent increase in luxury stocks in the fourth quarter that will require months to sell down.

Audi of America President Scott Keogh expects the pace of luxury sales growth to cool to around 3 to 4 percent this year after several years of rapid growth, including a 7.7 percent gain in 2015.

"Without a doubt, the marketplace is tightening, and what I think that's going to require is good business discipline. Drive demand for your products; don't get overstocked and oversupplied; keep your pricing power discipline," Keogh said in January.

"These are all the things that everyone has been preaching, and let's see if the preaching can hold true in a market that isn't growing by double digits."

Keogh is optimistic because Audi is launching fresh products in high-volume segments such as the redesigned Q7 large crossover that arrived in January.

January got off to a rough start for some: BMW, Lexus, Cadillac, Acura and Infiniti all posted sales declines. Luxury executives are watching pricing carefully.

"As soon as the market does not grow a lot, [higher incentives are] always the threat," BMW of North America CEO Ludwig Willisch said last month. "I do not see it happening right now."

BMW won the luxury sales race in 2015, narrowly beating Lexus, then saw its sales fall 4.7 percent in January.

According to TrueCar Inc., incentives rose for most luxury brands in January, many by double-digit percentages. Lexus' incentives jumped 26 percent; BMW's rose 18 percent; and Audi's, 9.5 percent.

TrueCar senior analyst Stacey Doyle estimates luxury sales will slow to a growth rate of 4.7 percent in 2016, but that assumes luxury brands will spend more in incentives.

"Mass brands, they'll really be driving the growth this year, whereas last year, it was more the luxury-premium side," Doyle said.

Mercedes-Benz aims for more U.S. growth without big incentive increases, said Ola Kaellenius, Daimler AG board member in charge of Mercedes sales and marketing.

"We've always been very sensi- ble in how we do that and protect our premium and protect our brand, and we'll continue the same policy," Kaellenius said in January.

Mercedes-Benz led the luxury segment last month with January sales, excluding Sprinter/Metris, edging up 0.2 percent, even as its incentives fell 5.5 percent to an average of $4,469 per vehicle.

Cadillac President Johan de Nysschen acknowledges that the slowdown in car sales could worsen this year. That will especially hurt Cadillac and its sedan-heavy lineup, which is due to get three new crossovers -- starting in 2018.

"In a very competitive environment, we've been able to show discipline" on not only incentives but also production, de Nysschen said in January.

Cadillac dealers were sitting on a 60-day supply of cars as of Jan. 1 vs. 123 days a year earlier. That helped push Cadillac's average transaction prices higher in 2015 even as incentives fell, he said.

But in January, Cadillac's incentives rose 21 percent to $6,233 per vehicle, second only to Lincoln among luxury players, TrueCar data show.

Porsche Cars North America CEO Klaus Zellmer said he expects higher Porsche sales in 2016 but won't spend a lot in incentives to get there.

"There was a lot of ambitions also driven with incentives to the year-end rally" in the segment, Zellmer said in January. "We have been successful in staying out of that pattern."

In January, Porsche sales rose nearly 11 percent. The brand's incentives jumped 62 percent, TrueCar data show, yet Porsche remained one of the lower-spending luxury brands in the market with a January average per-car spend of $1,319.

Ryan Beene, Mike Colias and Diana T. Kurylko contributed to this report.