Market trends: A prestige monopoly?

In the car market, size was traditionally associated with prestige – owners of Sierras aspired to Granadas as something bigger and better.

Meanwhile, volume car companies aspired to take a piece of the big-car action away from the likes of Mercedes. What no-one foresaw 20 years ago was that prestige manufacturers would turn the tables by coming downmarket in terms of size.

Models like the Audi A3 demonstrated that small size and high prestige are not mutually exclusive concepts. As we saw last month, lower medium prestige models now take 8% of the segment and this is growing year by year.

The Mini has been a runaway success.

However, the phenomenon of the Mini is making the prestige manufacturers wonder if they can go even lower. Audi has modified its position that the slow-selling lower-medium A2 would not be replaced. Instead of a direct replacement in the lower medium sector, the new car will be a premium supermini, based on the VW Polo.

With BMW having the Mini and Audi soon having the new A2, where does that leave Mercedes? Leaving to one side the slightly larger A-class, its version of the A2, the Smart ForFour, was launched to general bemusement.

Mercedes has announced that the ForFour will be dropped, but there is a catch. As it is made by Mitsubishi under contract, Daimler-Chrysler will have to pay compensation to break that contract – and there is little love lost these days between the two former partners.

Success depends on product as well as brand. The Audi badge could not save the first A2, because it was too expensive to make and did not appeal to its target market.

The Mini has been a runaway success because it is a good product that justifies the hype. The only problem facing Audi is making the next A2 sufficiently different from the Polo, but they managed it superbly with the Golf-based A3, so that is hardly an insurmountable barrier.

While volume car manufacturers may afford themselves a smile at Smart’s misfortune, the overall trend is distinctly worrying. If premium brands cherry-pick the most affluent buyers in every segment down to superminis, where are the profits for everyone else?

Car companies have made a decent return on hot versions of their hatchbacks for nearly 20 years now. If the concept of a hot supermini is made redundant by a Mini or small Audi, this makes a dent in the overall business plan.

In the eighties, supermini hot hatches made traditional small coupes look very dated. Could the same happen to small hot hatches at the hands of premium superminis?

Prestige segment shares

The prestige lower medium segment has been growing for years – but look at how supermini prestige has emerged from nowhere. By itself, the Mini is taking more than 6% of the segment – no wonder Audi wants a piece of the action. Within a few years, prestige brands could take 15% of both segments.