The next few years hold major promise for global manufacturers of premium passenger cars and crossovers, according to expert analyst Mike Jackson, director of North American Vehicle Forecasts at market researcher IHS.
Jackson recently produced a comprehensive analysis of automotive trends over the coming years titled Navigating for Growth: Global Automotive Opportunities and Pitfalls.
He found that the current healthy global trend for light vehicles was likely to continue, with sales expected to grow from 88 million in 2015 to 107 million in 2022 – a rise of 22 percent.
However, global demand for premium brands, such as Mercedes-Benz and BMW from Europe, Lincoln and Cadillac from North America, and Lexus, Acura and Infiniti from Japan, was expected to grow even faster, rising 28 percent from 8.9 million in 2015 to 11.4 million in 2022.
Seeking new opportunities
Jackson says much of the growth in the luxury category will stem from vehicle manufacturers working to capitalize on the strength of their brands by offering a more diverse range of products.
“Many luxury manufacturers are interested in growing their success and tapping into new vehicle segments with what we refer to as ‘white space’ entries,” he says.
For many premium manufacturers this “white space” means offering a broader portfolio of vehicles. In entry-level product categories, this strategy helps them to connect with targeted buyers earlier in life and build brand loyalty.
Crossover vehicles, built on a passenger car chassis but offering sport utility features, are a popular way of achieving this, particularly as buyers often seek the prestige and refinement associated with luxury yet with a broader range of vehicle dimensions.
Jackson cites the example of BMW, which recently announced plans for a new X7 SUV model that will serve as its flagship luxury utility entry. He also points to Mercedes-Benz, which is looking to expand its portfolio down-market and recently entered into a platform-sharing agreement with Renault-Nissan, in which unique Mercedes vehicles and Infiniti models will be produced at the same facility in Mexico.
Continued growth in China
Another key driver of the strong growth in the premium segment is the demographic change taking place in China. Even though the pace of growth in the Chinese market is slowing, the country is still producing more and more wealthy individuals who are interested in, and capable of, purchasing luxury vehicles.
“The emergence of China has been nothing short of extraordinary,” Jackson says. “And this is a market that in 2000 was in its infancy. So while we have already experienced tremendous growth, we still expect a tremendous amount of additional growth to occur.”
While China stands out from the crowd, other key markets such as North America and Western Europe have also bounced back from the global economic crisis with a healthy appetite for luxury vehicles.
Investing in the future
Jackson says the overall strength of the luxury market is good news for vehicle consumers on all levels. The high premium on such vehicles and demand from consumers for innovation generally means that manufacturers have the funds and the motivation to invest heavily in product development.
After a while, these innovations tend to cascade down into more affordable vehicles, increasing overall quality. One example is the common use of carbon fibre in vehicles, once a hallmark of luxury products. Carbon fibre can be used in all kinds of vehicle components, including body panels. Its advantages are that it’s incredibly light and remarkably strong.
“Manufacturers like Lexus or Infiniti often bring applications or materials into their premium offering and then later in the life cycle introduce them in their more mainstream offerings,” Jackson says. “In the end, it’s a win for drivers of luxury vehicles and regular vehicles alike.”