Top Selling Luxury Vehicles in Canada

Franz Jung, the new president and CEO of BMW Group Canada, takes one look at the BMW X3 crossover and says, “We can do better.”

What he means is that BMW AG, the parent, can help provide an X3 with more “substance” and BMW in Canada can support it better in the marketplace. BMW Canada's No. 1 dealer, Brian Jessel of Brian Jessel Motors in Burnaby, B.C., agrees.

“The problem is, they gave up on it; they stopped supporting it,” says Jessel, whose flagship store sold 1,644 BMW vehicles last year – and nearly 900 more certified pre-owned cars.

Jessel wants BMW to put more muscle behind the X3, but in a tough market – where BMW Canada is pushing monthly payments more than design, technology, quality, safety, style, performance and cachet combined – company resources are stretched thin. Globally, the parent company is struggling to find profits and reverse a sales slide that matches the global economic woes.

But the fact is, cars – even luxury cars – are sold one at a time. And Jessel thinks that with a little help from above – from Munich – the X3 can be a much bigger player.

“It's a great car,” he says.

Ah, but X3 sales last year were down nearly 23 per cent, and slipped to No. 7 overall among luxury sport-utes. Not only is the X3 feeling the heat, but BMW, the No. 1 luxury brand in Canada, can also feel the hot breath of its competitors.

Mercedes-Benz, in particular, is charging hard in a highly competitive market. Mercedes' sales last year were up 26.4 per cent, while BMW's slipped 3.3 per cent. Of the top six luxury brands, only BMW lost market share last year.

Jung says he believes Mercedes-Benz is “buying” market share by selling some vehicles at unprofitable prices and supporting others with inexplicably low cut-rate deals. But BMW, too, is offering deals on its models.

“I don't want to give up [luxury] segment leadership in Canada, but I do not really understand the approach of our colleagues from Stuttgart,” Jung says. “I do not really think there is profit there. I do not want to play this [discounting] game, but I do not want to give up leadership.” Quite the dilemma.

The X3 is a good example of what is happening in the bigger luxury picture in Canada. When it arrived in 2004 as a lower-priced, car-based crossover riding on the basic bits and pieces of the 3-Series, the X3 almost instantly became a strong contender in a market with only a handful of rivals – Lexus RX, Mercedes-Benz M-class, Volvo XC70 were the others in its price range among the top 10 premium SUVs.

Now, consumers have all sorts of new choices, in addition to what was around five years ago. Audi is just launching the Q5, Mercedes has the new GLK, which is selling like gangbusters, and there are other relatively new players such as the Acura RDX, Infiniti EX35 and Lincoln MKX. Of course, the established models have received updates, too.

“We now have more competitors than ever before,” Jung says.

And they are all chasing a shrinking market with more products. Last year, the luxury segment did not escape the bigger global economic crisis and that is continuing this year. Luxury sales in 2008 fell to 8 per cent of the total market.

According to analyst Dennis DesRosiers of DesRosiers Automotive Consultants, the luxury market peaked in 2006 with 8.5 per cent of the total new-vehicle market. That was the end of a steady rise from 3.1 per cent of the market in 1990.

All that growth was the result of what you might call the “democratization” of the luxury segment. That is, small luxury cars now represent about 50 per cent of all sales, whereas in 1992, some 42 per cent of the luxury market was comprised of high-priced luxury models, DesRosiers says.

As well, in 1990, there were no luxury SUVs at all, while last year they made up 34.1 per cent of the segment. The vast majority of those premium SUVs are so-called entry-luxe models like the X3, Q5, GLK and EX35. Yet even as models have come down in price, even the most affordable ones come loaded with gee-whiz features such as the EX35's around-view camera.

“Despite this preference for ‘lower-end' luxury, don't think that our luxury vehicles are bereft of content,” says DesRosiers, adding that while Canada gets some less pricey models than in the United States – the BMW 323i, for instance – “Many Euro luxury brands choose to sell their most heavily contented vehicles in Canada, making unavailable certain lower-end accoutrements (cloth seats, for instance) that are available in other parts of the world.”

While Mercedes sales surged last year, other luxury or premium brands also had strong years. Acura, the luxury arm of Honda, held steady at 16,000 units, for instance, and Lexus grabbed the fourth sales spot just behind Acura by about 1,000 units. Audi was also a big story, with sales up 12 per cent. And Infiniti's sales jumped 12.6 per cent.

In each case, new models keyed sales growth. Infiniti, for example, added the EX35 to its lineup last year and it accounted for 2,300 of the brand's sales total of 8,159.

While great products are critical, DesRosiers insists that strong dealers are an underappreciated asset – that they are essential for healthy and profitable premium brands. Without customer-oriented dealers working out of well-kept, modern stores, even very good products can get overlooked.

“A great example is Cadillac,” says DesRosiers, “which addressed a number of its product issues, but remains a second-tier luxury OEM [original equipment manufacturer] due to long-standing dealer issues.” Ford's Lincoln brand is in a similar situation.

“Having the best-performing, and therefore the most powerful, luxury dealer network in Canada has served BMW very well,” DesRosiers says. “This is one of the key reasons they have emerged as the No. 1 luxury brand in Canada over Mercedes-Benz, and it's on the strength of this solid dealer network that they have remained in first place during 2008.”

Meanwhile, the relative weakness of the Detroit-based auto makers in luxury vehicles – in terms of both products and dealers – has left room for plenty of others to step in. Today, 27 luxury brands compete for the Canadian buyer, DesRosiers says.

Of them, BMW dominates the most important and largest segment – entry-level luxury. The 3-Series is a stunning sales success in Canada, as it is around the world.

That said, Jung says BMW plans to expand slightly down-market with at least one new version of the 1-Series. Jessel suggests it will be a hatchback version that will broaden the lineup from the current 1-Series coupe and convertible. A diesel 1-Series hatchback is a likely possibility.

However, BMW's rivals are anxious to move into this territory, stealing sales and share away from the Bavarian auto maker.

Lexus has grown its sales by adding the IS and positioning it as a sporty sedan with a very good price. Audi, too, is there with the new A4 and the face-lifted A3. Mercedes launched a new C-Class for 2008 and, by emphasizing its sporty handling and aggressive pricing, the C has been a huge success.

“A lot of Mercedes-Benz's overall improvement last year came from growth in the small luxury segment, with sales of entry-luxe products up an incredible 51.7 per cent to 11,173 units in 2008,” DesRosiers says.

Mercedes also cut the price and repositioned the B-Class wagon. That's another problem for BMW's Jung.

“We don't really have an answer for this,” he says, hinting that BMW is working on one feverishly.

Feverish is, in fact, a good word to describe the competition here. The serious luxury brands continue to expand their lineups into an ever-increasing number of segments. This could very well lead to lower prices and devalued brands, DesRosiers says.

Nonetheless, look for more new models to come this year and next. Auto makers, for the most part, simply cannot resist the temptation to grow sales even if the reward on the bottom line is minimal, non-existent or worse – entirely unprofitable.

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How the brands rank

The top luxury brands in Canada (ranked by 2008 sales)

BMW 23,244
Mercedes-Benz 20,363
Acura 16,381
Lexus 15,001
Audi 9,271
Infiniti 8,159
Chrysler 7,852
Cadillac 7,337
Volvo 5,365
Lincoln 5,227