Brand Inflation

In Crowded Auto Business, a Push to Standardize "Premium"

new passat dpa
The new VW Passat is closely scrutinized. The car is trying to attract the "on the way to premium" buyer.
  • Why it matters

    Why it matters

    Audi, BMW and Daimler found financial success in the “premium” label, but it is applied to all conceivable models these days.

  • Facts

    Facts

    • German carmakers are selling more “premium” autos, but the bulk are still everyday cars.
    • Consumers are willing to pay a higher price if the driving experience is good.
    • The car makers’ goal is to retain 10 percent of the sales price as a “premium” profit.
  • Audio

    Audio

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We live in a marvelous era. Part of the world may be sinking into chaos, but Germany’s economy is doing just fine. Even in the E.U. crisis countries, things are getting better here and there. This summer seems sunnier. And we are enjoying an incredibly high standard of living.

Accordingly, our magic word is “premium.” Almost everything that we reach for, all we buy, eat or drink, everything in our careers, even our free time is premium today. Run-of-the-mill was yesterday.

This is true for German automakers too. Audi, BMW and Daimler are basking in their successes. Sales increase quarterly, and revenues and profits are at a record level. The success is the result of demand worldwide. No end seems to be in sight. The three companies are in a class of their own. They define themselves as standing at the forefront of automakers.

What leaves their factories is, according to them, no mass-produced commodity like vehicles from Toyota or General Motors — it is premium.

The reason why the trio doesn’t simply speak of quality cars has to do with the pricing. “Quality surcharge” somehow implies the standard version of a car is rickety. “Premium surcharge” sounds much better. With similar verbal acrobatics, breweries make their beers more expensive and telephone providers raise prices.

Customers apparently have been glad to pay the premium surcharge and there are no signs of that stopping. The Chinese, Americans and Russians prefer to drive vehicles “Made in Germany.” German cars are status symbols. Attracting customers with a premium strategy has worked out well.

With a BMW 3 Series in the basic version, the driving performance is first-rate, but the interior with all its plastic could come from the world of Lego or Barbie.

But the game has been played out. Not only because the word “premium” already sounds like how a turquoise-colored bistro table from the 1990s looks today. The manufacturers have been too successful with their strategy to simply continue on the current course. BMW sold 2 million cars last year and now aims for 2.5 million. Things are no different at Daimler and Audi. “Premium” is applied to all conceivable model series. And “premium” as a description of millions of cars no longer sounds particularly credible.

With these sales quantities, the triumvirate has outdistanced such brands as Opel and Skoda that were once labeled as inexpensive. Now Daimler, Audi and BMW have arrived in the mass segment of the market. Granted, the luxury-class models continue to be unattainable for most people. But Daimler doesn’t just build the S-class and BMW the 7 Series.

The firms have expanded their offerings in lower-price categories, and done so with considerable success. At BMW, almost every fourth vehicle is from the firm’s small 1 Series. The Mini is successful. Things are the same at Audi and Daimler. The three define their image with the luxury-class models. In reality, however, it is their smaller models that fill the streets.

But with smaller cars, the manufacturers must pay particular attention to costs if profitability goals are to be attained. For each euro in sales, at least 10 euro cents are supposed to remain in the hands of the automakers.

What remains of the claim to premium status amid the focus on costs may be seen in models from the lower and, increasingly, from the middle categories. With a BMW 3 Series in the basic version, the driving performance is first-rate, but the interior with all its plastic could come from the world of Lego or Barbie. “Premium” withers away to just a promise from the marketing division, and the label has a high price. What matters is charging for the good name.

Nonetheless, Daimler has recognized the end of the premium era. The firm is now speaking about “modern luxury.” That is supposed to be sporty and exciting. But making clear what is luxurious about the Golf-Pendant-A class requires investing multimillions in explanatory advertising.

Those determined to hold on to the term “premium” should take a look at Volkswagen. The folks in Wolfsburg consider their new Passat to be “on the way to Premium.” As a reminder: The Passat is a dependable car for a family with 1.5 children and a dog, according to statistics. In other words, absolutely average. Run-of-the-mill cannot be described better.

Martin Murphy is correspondent in Frankfurt. He can be reached at: murphy@handelsblatt.com

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