Automakers Shift to Luxury

The annual Detroit Auto Show got under way this week. It’s the industry’s premier event — just about every car manufacturer around comes to Motor City to show off updates of current models and introduce new models they hope will make a splash in the marketplace. This year, automakers are unveiling a lot of small, fuel-efficient models and radically updating existing best-sellers. But they’re really counting on the high-end consumer as automakers shift to luxury in search of high-horsepower profits.

At General Motors (NYSE:GM), the Cadillac brand has long been its luxury liner. This year, GM plans to pump up its Cadillac brand with the launch of several new vehicles. The full-size XTS is aimed at capturing the market for very large luxury sedans, while the CTS-V is the brand’s new high-horsepower supercar. In Detroit this week, Cadillac unveiled its compact ATS, a smaller version designed to compete with BMW’s iconic 3 Series luxury sport-utility vehicles.

Never a company that settles for being an also-ran, GM rival Ford (NYSE:FM) also has beefed up plans for its luxury division, the Lincoln brand. The company is showcasing major updates of two of its products, the MKS sedan and the MKT crossover. The makeover of these models includes a new front grille, new wheels, improved performance and boosted fuel economy. Ford also will equip the updated models with a new information-technology interface.

Despite their efforts to capture more luxury consumers’ dollars, both GM and Ford have a long road ahead if they want to make a dent in the space dominated by BMW; Daimler, maker of the Mercedes-Benz brand; and Toyota Motor Co.’s (NYSE:TM) Lexus brand. Last month, BMW managed to best Mercedes-Benz by becoming the top-selling luxury brand in the U.S. for 2011. Until last year, Lexus was the top-selling luxury brand in the U.S. This year, though, the Japanese automaker’s production snafus caused by the March earthquake and tsunami in that country, as well as a parts shortage due to flooding in Thailand, kept Lexus sales in the garage.

Lexus is going after the top spot again, and it’s putting its hopes on the second-generation flagship GS luxury sedan. The 2013 GS will have to compete with more than just BMW, Mercedes and Lexus these days. Volkswagen’s Audi line of luxury vehicles is on the move, as is Nissan’s Infiniti division. And though Honda Motor Co.’s (NYSE:HMC) Acura brand also suffered due to supply disruptions last year, you can bet Honda won’t take its misfortunes lying down.

The race for luxury buyers has definitely taken the green flag, and the 2012 Detroit Auto Show represents the first lap in what will likely be a contentious battle all the way to the checkered flag.

At the time of publication, Jim Woods held no positions in any of the stocks mentioned here.

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