One of the points that’s made ad naseum by people within the auto industry is how this is an industry based on passion. Yet despite that claim, I would maintain that with few exceptions, vehicle manufacturers don’t do a great job of creating products that people actually desire. And the last I checked, one must really desire something to be passionate about it. Otherwise it’s nothing more than a one-night stand that can be characterized by years of regret (i.e., think of all of those 60-month loans that are out there). Now, the aforementioned vehicle manufacturers may think that they’re creating these desirable products, but then they undercut the level of desire in somewhat short order by providing cash back and discounts. The number of people who truly want the product versus the number of people who are going after the deal becomes a blurry digit. One thing is for sure, however: the number of people who are passionate about the vehicle isn’t what it might be. Now, the counterargument might be that the vehicle manufacturers need to sell lots of those vehicles, and so in order to make sure that that happens, they offer a deal. Meanwhile, some other manufacturers—think, oh, of Lexus and BMW—do a super-lative job of making nice margins on vehicles that people are actually willing to pay for. I’m not suggesting that these vehicle manufacturers don’t have their own versions of facilitating the purchase, but I am willing to state flat out that there are probably a greater percentage of people who are rolling around in either of those marques because they want to, not because they got a super cash back bonus.
The Lexus/BMW approach is made remarkably clear in Trading Up: The New American Luxury by Michael Silverstein and Neil Fiske with John Butman (Portfolio; $26.95). The authors point out that due to changed demographic, cultural and economic conditions, there is a middle class consumer who has more disposable income than in previous generations and this consumer is showing a propensity to pick what they call “masstige,” or “mass prestige” products, those that aren’t nose-bleed expensive but are far from the bargain brands. They don’t pick all masstige all the time. They key in on a category or two because it matters to them: “She may shop at Costco but drive a Mercedes, for example, or buy private-label dishwashing liquid but drink premium Sam Adams beer.”“Some companies,” the authors observe, “hope to create a New Luxury product by sprucing up an existing product, adding new features, redesigning, or repositioning through advertising. . . . New Luxury consumers are not fooled by these superficial ‘new and improved’ products. They seek genuine benefits and real differences.” After all, these are products that they desire, that they feel passionate about. What do companies do that actually create the products that are distinctive—and remunerative? “Winners in New Luxury markets aggressively and continuously up the ante on innovation and quality, and they render their own products obsolete before a new competitor does it for (or to) them. They strive to shorten the product development cycle, make substantial investments in manufacturing improvements, and do not slavishly follow the rule that research and development should equal 5 percent (or any other fixed percentage) of sales.” Sort of sounds like what all vehicle manufacturing companies are doing, right? Right.