In recent years, Germany's Big Three automakers have been locked in a tight race for dominance of the luxury car market. Now the rivalry between BMW, Mercedes-Benz, and Volkwagen's Audi has expanded to include a holiday season battle for playground prestige with new push cars and snow sleds that target the next generation of drivers. Audi set the standard for luxury kid toys with a limited edition pedal-powered version of the Auto Union Type C, which it showed at the Nuremberg toy fair in February. The scale model of the 1930s racer, designed for kids up to 135 centimeters (4 ft. 5 in.) tall, has an aluminum frame, hydraulic brakes, seven speeds, leather-clad steering wheel, and oak dashboard. The car retails for €9,700 ($13,300), making it Audi's most expensive kid toy; only 100 of the 500-unit run remain unsold.
BMW is firing back in time for Christmas with new BMW- and Mini-branded sleds for €79 apiece. Daimler's Mercedes is countering with a version of the gull-wing SLS supercar for toddlers, due in April for €90 each. The carmakers are quick to explain that there's more to gain by promoting kid-focused merchandise than simply making a few euros. "Merchandising is important not because you can make huge money with it, but because it's another means of positioning your brand," says Peter Schwarzenbauer, Audi's sales chief. "We're thinking about more products that are not directly related to our cars but set design standards in other areas," such as a €12,900 tabletop soccer game.
Audi also has a line of teddy bears, including one decked out in a motor-racing suit for €47, and a modern pedal-powered alternative to the exclusive Type C. The red plastic racer for €299 features an adjustable rollover bar, hand brake, over-sized tires with Audi-style rims, and padded seats.
Luxury carmakers go to great lengths to add details that ensure their toys stand out. BMW's Snow Racer sled has replaceable metal runners, a suspension-system in the red steering ski, and a horn to warn inattentive passersby. In April, Mercedes will roll out the foot-powered SLS Bobby-Benz, featuring headlights, grill, and rear end similar to those of the company's $183,000 SLS sportscar. The toy SLS features quiet-running tires, an Ackermann steering system with tight cornering for living-room maneuverability, and a steering wheel that absorbs impact to prevent injury in the event of a collision. "All the products have to live up to Mercedes' standards for quality and safety—especially our toys, which are all-time favorites with the next generation of Mercedes-Benz customers," says Christian Boucke, head of Mercedes-Benz Accessories. The 10-year-old unit offers 15,000 products, including $24 silver Christmas ornaments, a $139 tote bag made from seatbelts, and a retractable pet leash for $15.50.
BMW began its lifestyle business 15 years ago. Today it sells more than 2,000 products including €39 Mini rain boots and the €1,500 bike from BMW's M performance unit. The company also introduced a kid edition of the M3 GT2 race car. The battery-powered version, which costs €349, has forward and reverse gears, and a top speed of 2.5 miles per hour. "We are first and foremost a marketing initiative, and the main objectives are to broaden the brand's presence and strengthen loyalty," says Thomas Goerdt, head of the merchandising and lifestyle unit. "We are a marketing effort that makes money." He says the unit enjoys profit margins similar to those generated from selling real cars. (BMW is targeting a margin of more than 7 percent this year on its auto business.)
While luxury consumers want a wide range of products to communicate their association with a favored brand, "merchandising needs to be kept in check so that it doesn't overstretch the brand or interfere with the core business of selling cars," says Michel Gabriel, managing director for consultancy Interbrand in Zurich, who has previously advised Audi on branding issues. "Sometimes you have to say no, even if a lot of money can be made from a product" such as branded underwear, he says.
Christoph Stuermer, an analyst with IHS Automotive (IHS) in Frankfurt, agrees carmakers have to be cautious not to dilute their brands. "Merchandising is always a little risky," Stuermer says. "It's a fairly delicate balance, because when you start putting an auto brand on a watch or a pair of sunglasses, the brand's authenticity can be called into question."
Still, toys are a particular attraction for car companies because they tighten relations with current customers and provide an opportunity to develop in future drivers an affinity for the brand. Take the kids of Sonny Kim. While having winter tires put on her 2007 A-Class hatchback at the Mercedes Center in Berlin, the 36-year-old graphic designer spotted a pedal car that sells for between €179 and €205. She thought it would make an ideal gift for her two- and four-year-old boys. "It would be nice for the kids to drive the same thing as mom and dad," she says. "It would be a nice bond."
When it comes to exclusive kid toys, Europe's top-three premium car brands are chasing Aston Martin. The ultra-luxury British automaker sold mini motorized replicas of the V8 Vantage Volante and Virage in the late 1980s and early '90s to customers including Prince Charles. The Aston Martin Volante Junior, which retailed at £15,000 ($24,000) plus tax, has a gasoline engine and a top speed of more than 30 miles per hour. The cars have resold for as high as £25,000, according to Roger Bennington, managing director of Stratton Motor, one of the world's largest Aston Martin dealers. "A lot of people bought them as a collector's item when they had a new car built and would normally have the Junior built to the same specification," says Bennington. "I don't actually think many kids got to use them as they were normally the prized possession of the Aston Martin owner. They were also a little bit too fast for children."
The bottom line: Europe's luxury carmakers hope to bolster their brands by selling expensive toy cars aimed at children—tomorrow's buyers.