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American Auto Tastes Move Upscale: Wall Street Journal

March 29, 2002

Today's auto market is increasingly "shaped like an hourglass," says Helmut Panke, who is scheduled to take over this spring as head of German auto maker Bayerische Motoren Werke AG.At the bottom, the only differentiator is price, and advantage shifts constantly between rivals that can deliver the best value. At the top are luxury names, which rely on the cachet of their well-known brands and which are aggressively coaxing middle-class consumers to climb up the ladder, according to the Wall Street Journal.Luxury-car makers, such as BMW and DaimlerChrysler AG's Mercedes, which have set sales records in recent years, are spending billions on new, lower-priced models to coax consumers up from the middle market. The shift has pulled the rug out from under some legendary American auto brands, such as DaimlerChrysler's Plymouth and General Motors Corp.'s Oldsmobile, which once populated the broad middle but didn't have the cachet to compete with the luxury nameplates.Detroit automakers insist they're still capturing many of the buyers moving upscale, thanks to SUVs, which continue to post record sales growth even after a decade of explosive popularity. Nonetheless, GM's biggest challenge remains "our inability to gain or retain customers in the higher income groups," said GM market analyst Paul Ballew.The big luxury car makers like BMW and Mercedes face a big risk: They could undermine the cachet of their $70,000 top-of-the-line cars with their new sub-$30,000 offerings. And those less expensive cars may not measure up to consumers' expectations.BMW's Panke says he expects sales of premium vehicles to grow at twice the rate of the mass market over the next few years. That's because consumers are increasingly willing to pay more for what they perceive as a better value, according to the Journal.
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