Luxury tastes growing for Canadians, especially when it comes to SUVs
Baby Boomer money, low interest rates spur sales,
Want to hear a fun fact? In 1990, there were 65 light luxury truck models sold in Canada. In the luxury market, that accounted for 0.2 per cent. Now they account for 60 per cent of that market, which, in 2016, meant 130,124 vehicles. These figures do not include full-sized pickups or Smart cars or Minis.
It’s no surprise that SUVs and CUVs fill dealers’ showrooms and dominate our roads. Buyers can’t get enough of them, and manufacturers don’t just fill the segment with attractive options, they splinter existing segments and create new ones to wring every last incarnation out of a product line that never seems to get saturated.
Dennis DesRosiers, of DesRosiers Automotive Consultants, has devoted more time than usual to the phenomenon in his latest report. Sales of luxury vehicles are exploding, and show no signs of stopping.
“There was a day when high luxury passenger cars, like the BMW 7 Series, the Audi A8 and the Mercedes-Benz S-Class, accounted for over 40 per cent of luxury vehicle sales. Now they account for only 5.9 per cent of sales,” he reports.
Aren’t we supposed to be going smaller? Aren’t we supposed to be going electric? Aren’t we supposed to be, well, less like a bunch of kids in a candy store and more, I don’t know, responsible? Manufacturers surely hope not.
First, the impact of luxury sales on the market as a whole is growing at a rapid clip. In 1990, the luxury portion was 3.1 per cent of the market with 39,000 units sold.
“In the following decade (2000) its share almost doubled to 5.9 per cent and 91,000 units. By 2010, its share had increased to 9.0 per cent and 143,000 units. And the last two years it exceeded 200,000 units per year and for the first time reached 11.1 per cent of the Canadian market,” DesRosiers reports.
There are many contributing factors. Low interest rates have helped shoehorn more people into more expensive cars, as have ridiculously extended loan periods. The Baby Boomers, and the huge bags of cash they’ve been sitting on, are cracking open the last of the great pensions and dipping into a too-hot-to-touch housing market. Money, money everywhere.
The demise of the full-sized sedan that once showcased good taste and perfectly fine utility has been replaced with a clamouring for the higher vantage point of a truck but with all the comforts of a well appointed home.
DesRosiers notes that the U.S. market is 20 times the size of Canada’s by volume and vehicle pricing there is often lower. When the dollar was closer to par a few years back, thousands of luxury vehicles were imported into Canada. At first blush, this would seem to indicate luxury sales here would falter. Instead, it’s a case of once you go luxury, you never go back.
“Now that they own a luxury vehicle, most are unwilling to move back to a mass market vehicle,” says DesRosiers.
The top sellers of the segment are BMW and Mercedes-Benz, followed by Audi, Lexus and Acura. Many badges are now stretching their reach beyond their high-end segments and venturing into mass market territory, snaring buyers who previously would have been unable to sit themselves behind the wheel of something sporting that cachet.
DesRosiers notes there is good life in more expensive rides. They tend to be better built and better maintained, he argues. Lifespan figures bear out his words: after 25 years, 7.1 per cent of mass market vehicles will still be on the road, compared to 21.8 per cent of luxury, 24.7 per cent high luxury, 58.6 per cent luxury sport and 22.4 per cent of luxury SUVs.
DesRosiers tosses in a brain teaser from 1990 that highlights this longevity issue.
“Which brand led the luxury market in 1990? … Volvo was the No. 1 luxury brand in Canada in the late ’80s through to the ’90s when Cadillac and Oldsmobile finally outsold them.” You still see these Volvos on the road today.
For consumers, it’s important to note that these aspirational buying habits can come with their own considerations. The people with all the coin buy them and often cast them aside in a few years. That may leave a lovely buffet for those of us striving to get out of our less thrilling mass market offerings, but the fact remains, more expensive cars, even if purchased for a bargain, come with more expensive upkeep.
Premium buyers demand — and get — the latest in technology and safety equipment. The latest also means the least tested in many cases, and you really need to measure your tolerance for putting up with bugs or glitches. If my dealer says I have to leave my vehicle with them for a few days or a week until they can replicate the problem, can I live without my car?
The report goes further into interesting points about fixed operations for the luxury brands. Dealerships need expensive standalones to be successful; if you’re about to shell out for a piece of high-end luxury, you don’t want to be rubbing shoulders with the great unwashed, apparently. Genesis, the upscale Hyundai brand, is facing this right now. The cars are stunning but it is cost prohibitive to develop boutique dealerships that showcase an upscale product that has yet to capture much percentage of the market.
Forecasts are for sunny skies. DesRosiers sees sales of 300,000 luxury units by 2020 and 350,000 by 2025. Brands are increasing their bricks-and-mortar investment to capture the expanding lucrative aftermarket and service dollars, but the combination of the required glitz means steep buy-in from both brand and dealer principals.
Canadians bought 1.95 million vehicles last year; never were so few of them sedans, and never were so many of them from the luxury segment.