TSX69

Is the "Near Luxury" Car Buyer Myth or Reality?

Honda Motor Co.'s newest sedan has an efficient 4-cylinder engine and its marketing plays up features like Internet radio, not power or speed.

This isn't the new Honda Civic. It's the Acura ILX, a car built on a similar foundation as its parent company's Civic that Acura hopes will give it a head start in the market for diminished luxury.

The Acura ILX, and rivals such as the Buick Verano and Lexus CT 200h represent a bet by some auto makers that demand is pent up for cars that are small and frugal like economy models, but come equipped with some of the comfort features, flourishes and badges of a luxury brand.

Joe White on Lunch Break looks at the release of the new Acura ILX and the "diminished luxury" class of cars that auto makers are now promoting. Photo: Acura.

Acura executives say they believe the "near premium" segment in which the compact ILX will compete could grow by as much as 16% a year, on average, through 2017—faster than any other luxury-market segment.

And Honda isn't the only company taking aim at consumers looking for status on a budget. German luxury brands have said they plan to bring to the U.S. more economical compacts and subcompacts they sell in Europe.

General Motors Co. recently launched its entry in the near-premium segment, the Verano. Based on the Chevrolet Cruze, the Verano is the first compact model offered under the Buick brand in the U.S. since the slow-selling Skylark was dropped more than a decade ago. GM also has a new, smaller Cadillac model due out in the fall, the ATS, that it is positioning as a rival to BMW's 3-series.

Honda's vice president for national marketing, Mike Accavitti, says the ILX is a response to a change in the mind-set of many affluent consumers.

"Since the Lehman shock, we have seen a fundamental shift in luxury buyers' philosophy," he says. "We are seeing more rational behavior in purchases."

The 2012 Buick Verano represents a wager by some auto companies that there is demand for small, fuel-efficient cars that come with some of the comfortable features and flourishes found in more expensive models offered by German luxury brands and other auto makers.

Acura also wants the ILX to lure members of Generation Y, the buyers between 18 and 34 years old who have landed decent jobs, want a luxury-brand car with a distinctive design, but don't really care how fast it goes—or so Acura executives believe. This target customer lives in or near a big city such as New York, Los Angeles or Chicago, where much of the time cars can barely get past 40 miles per hour in rush hour traffic.

The ILX starts at $26,795 (including freight charges), and ranges up to $35,295 for a loaded hybrid. That looks like a reasonable price if the competition is defined as German luxury cars like a BMW 3-series, which starts at about $35,000.

But the success of the ILX and similar cars will depend on buyers who may not fit the molds imagined by marketing departments.

"There's kind of a move for people to go to these smaller cars and still get the bells and whistles," says Rob Troxel, a longtime Honda fan who's looking for a replacement for the loaded 2009 Civic EX his wife drives. "Miles per hour is not as important as miles per gallon," he says.

Mr. Troxel might sound like a member of a focus group that gave Acura's marketing department the template for its target customer profile. But he's 65 years old—a baby boomer, just like most of the people who buy new cars in the U.S. And while he likes the concept of an economical luxury car, he is on the lookout for telltale shortcuts that betray a car's cheaper origins.

He tried a Verano, he says, but rejected it because the seat recliner was a manually operated, Chevy-style handle, not a smooth power device.

As for the Acura ILX, he says if the price is much over $30,000 he'd consider Acura's more-powerful—and expensive—TSX. Mr. Troxel also questions why the Acura only offers a 5-speed automatic, not the 6-speed its rivals typically feature.

Edmunds.com says 16% of people who used the car-shopping site to research the ILX in March also looked at the TSX. The next most cross-shopped cars against the ILX were the Acura TL and the Honda Accord. Among models offered by Honda rivals, ILX customers looked most at the Lexus CT 200h, a compact hatchback that Toyota Motor Corp.'s luxury brand is aiming at the same younger buyers Acura wants.

On the road, the 2.0 liter, 4-cylinder, 150-horsepower ILX is quiet and the steering is precise. But even standing on the gas pedal doesn't produce much excitement. The 201-horsepower, 2.4 liter model is more responsive, but it only comes with a 6-speed manual transmission, a deal-killer for most buyers.

The Buick Verano, like the ILX, is aimed at drawing a younger customer to the Buick brand. It comes with a 4-cylinder engine, with greater horsepower than the ILX, 180. The Buick offers a 6-speed automatic to the Acura's 5-speed.

The real challenge makers pushing econo-luxury autos is that many cars without luxury badges on the hood offer many of the "luxury" features, and often more power, for less money. And power still matters.

Danial Hyder, 32, works in corporate finance at the Detroit area offices of Robert Bosch GmbH, a big German auto-parts supplier. Mr. Hyder says he owns an Acura MDX and a 2006 BMW 5-series. He looked at the ILX but concluded that the car didn't measure up to rivals in the same price range.

The car he ordered: a 2013 Taurus SHO, the 365-horsepower muscle car version of Ford's sedate, large sedan.

Write to Joseph B. White at joseph.white@wsj.com

Rocket_man

"...He looked at the ILX but concluded that the car didn't measure up to rivals in the same price range. ..."

Unfortunately something that may be repeated more often than Acura wishes. At a lower price this all changes.

CoquiTSX

+1

pickler

no it does not. acura is often the first or second to get into a field like this but they just cannot execute. With the rdx which was to compete with the X3 they targeted the wrong people. with the ILX they want to target young people with ~60k annual income. however slim this customer base is, the ILX is not in reality a target vehicle for these people. Those people buy stuff like genesis coupe, audi a3, 128i and etc. The ilx will be popular with small families with a good income. Im guessing ILX will steal some is250 customers. Thats what happened with the CSX in canada, it outsold the IS250 in 2008.

Rocket_man

In less than a month this thing will be for sale so we will start to see who is buying this car and in what numbers. I hope this is a success for Acura because I like the brand and want it to succeed.

I think this car will be better when the Earth Dreams engines are incorporated. Not sure when that will be but Acrua has said they won't wait for an MMC to incorporate it. So that could be as early as next model year.

I like the direction with the ILX and RDX of increased focus on refinement. I'm hoping for that in the TLX. Just wish it would come faster.

Edward'TLS

Only time will tell !

pearldrummer

I think I'm the target for this car. Lately I've been looking at full optioned out everyday cars like the 2012 Accord (EXL Nav) while at the same time checking out "near lux" cars like base model 2012 Infiniti G37 (no nav, no moon roof, etc)

ILX 2.4 6MT is right down my alley, but add NAV, bigger wheels, bigger brakes, a lip kit and call it "Type-S" and I would be more interested.

CGTSX2004

iTrader: (1)

This article makes some interesting points, but I would argue that the "near luxury" buyer is really going to become the norm as opposed to being a niche segment of the market. If we look at the upcoming generation of buyers, we will see a group that was raised on video games who are looking less for driving excitement and more looking for rolling entertainment platforms to keep them from being bored between point A and point B. These buyers are really looking for more comfortable and luxurious interiors with ever more connectivity, gadgets, entertainment options. Call it a rolling billboard for their lifestyle.

And if we look at the entry level cars that are coming to market at the moment, we see that the new generation of small cars is really catering to this generation of buyers. You look at the Ford Focus, which really has a very premium looking interior, lots of gadgets standard and even more as optional, although it is still a pretty decent drivers car. That is a car that should sell well. Another great example is the Hyundai Veloster which also has a nice interior, all manners of gadgets, and an edgy look that has made it a hot selling car; so much so that it literally is hard to find in many regions of the country.

So the way the market is trending, more performance oriented cars with sharper driving dynamics and tuned for enthusiasts are going to become an even more niche market for manufacturers. The buyers who will drive future growth will be less interested in flat out performance, but instead want something that is pleasant to drive (so there is still a floor on performance) every day, but there will be an ever increasing focus on having luxury touches like leather interiors and technology as well as green features/greater fuel economy. "Near luxury" could pretty much look like the new normal in as little as 5 years.

dcdriver

after i finish paying my current TSX off, I'd like to get in that ILX hybrid myself, but only with tech. The price however is basically almost at LExus HS territory though.

jchan2

I think Acura is targeting my peers and myself (I'm 20 and a college student) when we go out to buy our first car on our own as our careers start to really accelerate.

While I could see a lot of my peers going for this kind of car (women, mostly) and while I will most likely be in this market segment when I start working, I have a hard time justifying buying the ILX in the form that I would probably buy it (2.0 Tech) when for around the same roughly $28,000-$30,000 transaction price I have a ton of alternatives from the 2013 Ford Fusion 2.0T to a CPO BMW 328i to the upcoming Audi A3 and Mercedes A/B Class to getting a Mazda3 Skyactiv and pocketing the difference.

And when you take all of those competitors under consideration, even ones that may not be from a premium brand, it's pretty easy to eliminate the ILX as a potential purchase.

Though this situation may change when the Earth Dreams powertrains come- the gist from the initial reviews seems to be that the car actually handles fairly well but lacks a bit of feedback in the steering.

afjock21

screw the ILX slept on it for a few days and it doesn't cut the mustard. It's for a lady I mean really.. no tailpipes? Luxury for the wanna be high roller.

CoquiTSX

+100

CoquiTSX

For a "base" HS. if you start adding options it's not even close . I believe they are discontinuing the HS, they will keep the CT.