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Market trends: Small, prestige cars

A year ago, we wrote about the likely rise in sales of prestige lower medium models.

Since then, it has turned into one of the most keenly observed segments of the market. In the last three months alone, there have been announcements from three competitors about how they plan to attack it.

Recently, Martin Winterkorn, boss of Audi announced that the company had not given up on the concept of an A2. The first A2 was a rare failure by Audi, which seems to have learned the lesson and is promising a particularly sporty replacement.

Winterkorn says a new A2 could not be ignored. In a contender for least politically- correct comment of the year, he said: “The wish of Audi customers for a product below the A3 for their wives or children is simply too great.”

Just a couple of weeks earlier, Saab managing director Jan-Ake Jonsson said the company was looking at the segment below the 9-3 that would compete with A-class, 1-series or A3.

Meanwhile, in January, Volvo previewed the C30 sports hatchback that will be launched later this year.

The obvious question is whether there will be a market for all these new products.

In 2005, the BMW 1-series managed to shift 22,500 units, which was a swift riposte to anyone who thought a small, rather cramped and controversial-looking BMW might be a difficult sell. The most telling statistic, though, is that the 1-series did not take sales from any direct competitor. Both Mercedes (A- and B- class) and Audi (A3) increased sales – indeed the A3, the 1-series’ most obvious competitor, grew sales by 17.7%.


BMW’s controversial 1-series has been an undeniable success

Prestige lower medium cars accounted for 71,000 sales last year, while mainstream lower medium models accounted for 779,000. The A3 and 1-series have proved beyond doubt that there is a market for a prestige lower medium.

The size of the market is very tasty: the volume lower medium segment accounted for 31.9% of all sales in 2005. Every 1% shift from volume to premium hands more than 7,000 units per year.

The wonder is not that other companies want to join the party, but why it has taken them so long.

The Volvo C30 is arriving in reasonable time and is the result of a carefully worked out product development plan following the Ford take-over in 1999. However, it is a measure of the crisis at Saab that it is only now starting to think about such a car.

By the time a 9-2 appears it will be 2008/2009, by which time a lot of the growth will already have happened.

Sales of prestige brands 2001-2005M

In the past five years, prestige brands have increased their sales from 39,000 in 2001 to 71,000 in 2005 – not many sectors can boast that sort of increase.

While Audi and BMW have had huge growth, Mercedes is back where it started. However, it is selling fewer A-classes to rental firms and retail sales are likely to pick up.

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