Before the global economy started to circle the drain, it was natural for premium vehicle buyers to progress through the model hierarchy – that is to move from a vehicle like the BMW 3-Series to the larger and more luxurious 5-Series. However, the recent economic downturn has changed the way most American’s think, with vehicle downsizing becoming increasingly popular.
According to the latest survey from J.D. Power and Associates’ Power Information Network, far more premium buyers are moving down the vehicle hierarchy rather than up. That is a big change from just a few years ago when most buyers steadily moved up through the model ranks.
“Since 2006, we have seen buyers less willing to trade up and an increasing number trading down in their purchase,” Geoff Broderick, PIN general manager, told Automotive News.
In 2006, 15.9 percent of premium buyers moved from a compact model to a more up-scale mid-size model. However, that trend reversed during the first half of 2009, with only 11.5 percent of buyers making the jump to the mid-size ranks.
The change has been even more pronounced in the mid-size to large transition. Whereas 8 percent of buyers made the switch from mid-size to large offerings in 2006, only 4.5 percent of premium buyers have done so in 2009.
On the reverse size, downsizing in the premium segment is more popular than ever. Just 12.6 percent of buyers made the move from a large offering to a mid-sizer in 2006, but 16.2 percent of buyers have made the move down-scale in 2009. The switch to compact vehicles is even more popular, with 14.8 percent of buyers – up from 10.8 percent – going from a mid-size to compact.
There are certainly many factors behind the new downward trend, but the death of conspicuous consumption is leading the rally. The wealthy can still afford to purchase the best an automaker has to offer but, in the current economic climate, it’s no longer fashionable to flaunt one’s money.
“People can afford an S class,” Bruce Schulman, general manager of Beverly Hills Mercedes-Benz , told Automotive News, “but they are getting an E-Class in the same color because they have laid off people or have upcoming union negotiations. They don’t want to be seen as having luxury in this situation.”
The new trend is affecting almost every premium automaker, including Mercedes, BMW , Lexus and Acura , with some buyers making the switch to cheaper alternative from Audi or even Hyundai . The trend has even boosted pre-owned vehicle sales. While there is no denying the down economy is changing the tastes of luxury buyers, it remains to be seen if the new trend will remain constant or revert back once the global economy improves.
