Lines Between Mass-Market, Premium Vehicles Blurring

The ubiquitous presence of technology now required to meet rising customer expectations for vehicle build quality and performance  is reshaping the new-car landscape.

According to the latest vehicle configuration tracking data from J.D. Power, the lines between mass-market and premium segments have blurred. Beyond MSRP, little in the way of features is distinguishing, for example, Hondas from Acuras or Chevys from Cadillacs.

As a result, vehicle buyers are re-evaluating what they deem to be essential attributes for their next purchase. It is a decision-making process that has taken on more urgency as consumers face an uncertain economy while new-and used-vehicle prices continue transacting near historic highs.

Shoppers consequently are being more careful with their financial resources. If a mass-market vehicle has most – if not all – of the bells and whistles found on a premium model, they are taking a hard look at whether the price difference is worth it. Just how much is brand cachet worth?

Many shoppers also are looking down the line to when they return current purchases to the aftermarket. Consequently, residual vehicle valuations are becoming more critical than ever.

Beyond potential car buyers, OEMs and dealers need to understand value retention factors to carefully determine the feature sets that should be included in mass-market and premium assets. It is the only way they can anticipate how new vehicles sold today will perform when they return for resale.

Under the Hood of Residual Values

Automotive residual values are determined through a rigorous analysis of key future market expectations along with individual vehicle features and attributes as they relate to their competitive sets:

Mass-Market Appeal

Mass-market brand vehicles are no longer the unglamorous, vanilla workhorses of the industry.  The entry of new mass-market players during the past few decades has introduced new competition and upped the ante for automakers seeking continued relevance in today's revitalized market.

Companies such as Hyundai and Kia have disrupted the mass market, over-achieving expectations of customers and largely displacing former residual-value leaders such as Honda and Toyota. These newer players have made a habit of rolling out the latest technologies and features with every vehicle refresh, setting new precedents that have elevated the requirements of the entire mass-market category. In doing so, vehicles like these are closing the gap with premium brands. Hyundai and Kia, which are linked by related ownership in South Korea have also excelled with their telematics systems, in contrast to more established brands like Ford, Chevy and Honda, which have under-achieved and under-performed, compared with the Korean brands, in telematics.

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This can only be seen as a shot across the bow of premium vehicle manufacturers. Leaders in this segment must consider rededicating their efforts to bolster their brand image and re-establish differentiation from mass-market competition.

David Paris (pictured, above left) is director of Market Insights and Valuation Services at J.D. Power.