Luxury Cars Shine for Auto Makers

While they account for only around 13% of the total U.S. market, luxury cars are highly profitable and continue to sell well

Last year may have been terrible if you were a Dodge or Ford dealer, but if you sold Lexuses or BMWs you may be forgiven for wondering what all the fuss was about.

That's because while sales of moderately priced cars and SUVs continued to dwindle, the luxury vehicles most popular with American consumers surged. Six of the 10 best-selling models for 2006 posted double-digit gains in sales. A few even showed dramatic improvements despite high fuel costs and growing competition.

Lavish Margins

Healthy results at a luxury nameplate are especially good news for auto manufacturers. Luxury customers are, in general, less susceptible to subtle changes in the economy. And luxury models typically carry higher margins than bare-bones cars and trucks that are forced to compete on price rather than prestige or features.

One Mercedes-Benz executive says the voluminous margins on its high-priced S Class sedan played a big part in buoying recent results at the German luxury brand. The company, he says, "makes as much as $25,000 per vehicle sold."

Luxury autos still make up only a small block of all vehicles sold in America every year, with a market share of around 13%. According to Detroit automotive consulting firm CSM Worldwide, that number will likely jump to 15% by 2009 and as high as 17% by 2012.

Yet there wasn't one luxury or even near-luxury—sometimes also referred to as "premium,"—vehicle in the top 20 best-sellers last year, where the mainstream Ford (F) F-Series pickup and Toyota (TM) Camry sedan still reign. However, excluding trucks, BMW's stylish 3 Series does creep into the top 20 cars list, according to Automotive News.

Bullish on Sales Growth

Still, executives and industry analysts are bullish about the potential for growth in luxury sales on American soil. Johan de Nysschen, executive vice-president of Audi in the U.S., expects the market to grow by as much as 21% in the next five years, more than quadruple the 4.8% growth anticipated for the entire market.

If anything, the most popular models seem to be getting even more so. BMW posted a year-over-year increase in 3 Series sales of 12.4%, to 120,180 units. Its larger, more costly 5 Series also managed to grow by 7.7%, to 56,756 models sold.

There were some unlikely gains, too. Sales of Cadillac's larger-than-life Escalade ballooned 17.8%, to 62,206 units despite the record price of gas and a generally crummy market for large truck-based SUVs. Cadillac also revived sales of its DTS large sedan, more than doubling total sales. Its CTS sport sedan, which is getting a major revision for the 2008 model year, made the top 10, though sales were off by more than 10%.

Of course, Toyota continued to make its mark. Sales of the RX series of SUVs stayed flat, but the model was still the second best-selling luxury vehicle on the American market. Sales of the midlevel ES line were up, meanwhile, by 12.4%, to 75,987 units. The company also managed to reinvigorate sales of its 3 Series competitor, the IS, boosting sales 243.7%, thanks to an all-new model.

Click here for a rundown of the best-selling luxury cars on the American market.