Environmental Rules Force Luxury Brands to Downsize

But with new environmental regulations staring them in the face, luxury carmakers are trying on a new set of values — smaller, humbler and more fuel-efficient — that might shock a large-barge traditionalist.

Downsizing is the rage among luxury cars, from slimmed-down bodies to smaller four-cylinder engines and hybrid or electric power.

Land Rover’s striking, $44,000 Range Rover Evoque crossover is the lightest, most fuel-efficient Rover in history. Powered by a turbocharged four-cylinder rather than a beefy V-8, the Evoque earns a federal highway rating of 28 m.p.g.

Lexus bills its CT 200h as the world’s first compact luxury hybrid hatchback. BMW plans to begin leasing small numbers of its Active E, an all-electric version of its perky 1 Series coupe, in urban markets. Small sedans, crossovers or hatchbacks are in the works from Cadillac, Mercedes, Lincoln, Porsche and more.

Even an imposing sport sedan, the exotically styled Fisker Karma, goes for a tiny game-changer under the hood: A two-liter G.M. four-cylinder mated to a plug-in hybrid system, good for 403 total horsepower.

In some ways, industry downsizing is a do-it-or-else proposition. A federal target of 54.5 m.p.g. by 2025, along with anticipated carbon dioxide emissions rules in Europe, have even deluxe brands scrambling to increase fuel efficiency.

But a question remains: Shy of $6-a-gallon gasoline, are enough Americans willing to spend big bucks on a little car?

Smaller luxury cars, many powered by frugal diesels, have proliferated in Europe. But Americans have rarely seen the point of buying less car, especially when a roomier version can be had for roughly the same price.

“We’re still a bit in the experiment stage,” said Jeff Schuster, director of forecasting for J. D. Power Associates.

The list of America’s most notorious luxury failures is littered with small, entry-priced models. Lower the bar too far in styling, features or power, and American critics and buyers quickly sniff out a designer impostor.

In the ’80s, Cadillac dressed up a rattletrap Chevrolet Cavalier and called it the Cimarron. Consumers weren’t fooled.

Cadillac will look to correct that mistake with the ATS sedan, a taut-bodied BMW 3 Series fighter that goes on sale next year. Caddy is also developing a compact plug-in hybrid based on the Chevrolet Volt’s system.

As with the Cimarron, a cut-rate luxury car can tarnish the image of an entire brand. That’s what happened when Jaguar — desperate for its own entry-level rival to the BMW 3 Series — disguised a Ford Mondeo sedan with leather and a feline “leaper” badge and tried to pass off the shoddy result as the 2001 X-Type. The Jag later joined the Cimarron on a Time magazine list of the 50 worst cars of all time.

Yet automakers and analysts say that much has changed. Soaring fuel prices and concerns over climate change have even wealthy customers checking their wallets or questioning consumption.

Mr. Schuster notes that, in contrast to the social climbers of yesteryear — conspicuously rebadged versions of mainstream models — new versions tend to be sophisticated, stand-alone designs. The success of BMW’s Mini has also helped make the market safe for premium small cars, for both automakers and buyers.

For Mercedes, the German automaker has long restricted its affordable, front-drive A-Class hatchback and B-Class minivan to foreign markets, suspecting that Americans would reject these practical-yet-frumpy machines.

But Mercedes has radically revamped these small cars with Americans in mind. At New York’s auto show in April, Mercedes showed a stunning A-Class concept, which along with a more-stylish B-Class, is being readied for America in 2013. Small four-cylinder turbo engines will power those models, which analysts expect will start around $30,000, and Mercedes plans hybrid or electric variants.

“If you’re half-hearted about downsizing, people perceive that model as being less,” said Donna Boland, a spokeswoman for Mercedes. “But these cars will be every inch a Mercedes.”

For leading luxury brands, entry-priced sedans or crossovers at roughly $30,000 to $50,000 — including the 3 Series, Audi Q5 and Mercedes C-Class — have become crucial drivers of sales and profits. But as these cars have grown larger and costlier, automakers see a fertile niche just below and a chance to capture younger buyers, perhaps for life.

As Mercedes developed its premium small-car strategy, the automaker identified a mass of buyers from Generation X and Y entering peak earning years of roughly age 40 to 54, even as baby boomers eased into retirement.

“This is a different buyer group than what we’ve dealt with for decades, with different ideas on what and how they want to drive,” Ms. Boland said.

The numbers appear promising. J. D. Power projects sales of small premium cars to reach 450,000 by 2015, from just 100,000 in 2005. Pint-size models would account for nearly one in five luxury sales, up from one in 20 in 2005.

Perhaps no car symbolizes the changing order like the Aston Martin Cygnet. The British ultraluxury brand, famed for six-figure Grand Touring cars, has given the Toyota iQ, a tiny city car in the vein of the Smart, an opulent makeover. The resulting Cygnet, powered by a mere 1.3-liter engine, is on sale in Europe for about $48,000. Aston may consider bringing the microcar to big-city markets here in coming years.

Since the negative fallout over the X-Type, Jaguar has never again tried a compact model. But Ian Callum, Jaguar’s influential chief designer, has acknowledged the lineup’s glaring lack of a small sedan or crossover and suggests those holes may soon be filled.

Article source: http://www.nytimes.com/2011/10/14/automobiles/environmental-rules-force-luxury-brands-to-downsize.html?partner=rss&emc=rss