In smaller SUVs, some see a lower-cost path to luxury
A decade after
Why the trend? Some experts say small SUVs offer shoppers a cheaper path into luxury brands, much like entry-level luxury sedans. Others argue that a compact SUV fits certain lifestyles that a luxury manufacturer's bigger SUVs cannot address. Above all, one thing is apparent: Shoppers are looking for upscale brands across a wider range of body styles, and with today's global sourcing and lower development costs, automakers are more than happy to oblige.
When BMW's X3 hit dealerships in early 2004, it shared the field with just Land Rover's Freelander, a car that even Land Rover admits was not a good fit for the US market. Acura was next with the RDX, new for 2007, and the Audi Q5 and Land Rover LR2 are expected sometime this year.
That's just the beginning.
"This segment has definitely attracted a lot of manufacturers," said Ryan Robinson, an automotive analyst at PricewaterhouseCoopers. "It sets up a very attractive business case for a lot of these manufacturers, particularly when you can pull something off a platform that's higher volume."
"You can pull the cream of the crop off the top [and] produce a vehicle like this in lower volumes at relatively low overall development costs," Robinson said.
That explains the slew of contenders that are expected to come, like the Cadillac BRX, Saab 9-4X and a still-unnamed model from Lexus. According to Automotive News, both the BRX and 9-4X could be based on GM's next generation of compact crossovers -- popular sellers like the Chevrolet Equinox and Saturn Vue. The upcoming Lexus will probably share underpinnings with parent company Toyota's RAV4, Robinson said.
Lonnie Miller, a senior analyst at R.L. Polk & Co., said brand reputation is a major factor in driving customers into the segment.
"Automakers pursue customers for this type of body style because it offers what is fundamentally sought from an SUV," Miller said. "They certainly provide a nice touch with their design cues, interior styling and, more importantly, the reputation of the core brand.
"The brand plays a strong role," he said, adding that it even supersedes the number of features a luxury model offers. Robinson also emphasized the importance of a luxury marque. It's something the segment plays right into, attracting entry-level customers by offering "appointments they can afford, but they don't have to go into a large luxury [crossover] or SUV" to get, he said.
"It offers you an opportunity to get into an Acura or a Lexus without having to go full bore into their core luxury products," Robinson said.
Spend the extra cash, and mid-size SUVs like the BMW X5 or Land Rover LR3 offer more amenities: V-8 engines, third-row seats, and multi-contour front seats, to name a few.
Still, even base compact luxury SUVs are well-equipped. For instance, Land Rover's $34,000 LR2, new for 2008, includes 18-inch alloy wheels, a panoramic moonroof, and electronic parking assistance. That's partly why LR2 product manager Greg Gilliland resists calling it, or any Land Rover, the brand's entry point.
"It really depends what kind of customer you are," Gilliland said. "I think it's much more of a brand by choice. You have a family of four, and their entry into the brand might be the LR3. Someone that's single might find their entry to be the Range Rover Sport."
BMW spokesman Tom Plucinsky echoed the entry-by-choice mantra, saying that for X3 buyers, price is not as important as some might presume.
"We see the same type of rationale between the 3 [Series car] and the 5 Series, and the X3 versus the X5," Plucinsky said. "In the market, it's not perceived that much."
That could be because the actual price difference is relatively small. At $38,000, the X3 is about $8,000 short of the X5 -- substantially less than the $10,500 gap separating the two in 2004.
The $35,000 figure around which compact luxury SUVs start encroaches on a lot of other territory.
Ordinary compact SUVs like the Mazda CX-7 and
"You can't discount the crosswalk between what you'd call a premium and a non-premium SUV," Robinson said.
"You can get the leather package on a high-end crossover [SUV] that might normally be in the non-premium end of things, and suddenly you're into something a bit more premium. It's a bit difficult to draw the line."
With a swarm of automakers rumored to be joining the fray, compact luxury SUVs have evidently proved their viability. It bears warning, however, that as more automakers enter the segment, the originality of such cars will diminish.
"You're definitely going to see, as more competitors enter the space, the more institutionalized the segment will become," Robinson said. "But it's a double-edged sword. The more competitors in the space, the more opportunities to drive consumers into showrooms."
For now, luxury carmakers are optimistic about the road ahead.
"Because it's such a hot segment, we're finding other manufacturers that will fall into that segment in the future," Land Rover's Gilliland said. "There's a level of investment that's going into that segment that's pretty exciting."
