A Disturbing Trend for Automakers: Ford Motor Company (F), General Motors Company (GM)

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I’m not sure what it was. Maybe I was just in a good mood. But I enjoyed the Super Bowl commercials more this year than last. There was one in particular that made my jaw drop, and not because it was the funniest or flashiest, but because it just flat out surprised me: The Mercedes-Benz commercial, with Willem Dafoe acting as the devil, showed the luxury CLA model with a sticker price starting at $29,900.

Ford Motor Company (NYSE:F)There’s a big push by automakers to capitalize on the 75 million Americans in the 30- to 40-year-old range, many of whom desire luxury vehicles but can’t afford the $40,000-plus price tag the baby boomers can. Yet as an auto investor, I can’t help noticing that the new entry-level luxury segment is all of a sudden crowded. I’ll show you how many vehicles are in this segment, and why it could lead to big problems for Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM), Toyota Motor Corporation (NYSE:TM) and Honda Motor Co Ltd (NYSE:HMC) . I’ll also cover factors that we, as auto investors, need to keep in mind going forward.

According to Edmunds, there are 27 vehicles in the luxury segment in the $25,000 to $35,000 price range. Looking specifically at the target line of $30,000, here is the list of vehicles competing.

Model Price
Meercedes-Benz CLA $29,900
Audi A3 Diesel $30,250
SAAB 9-3 Wagon $30,330
Acura TSX $30,510
BMW X1 $30,800
BMW 1 Series $31,200
Volvo S60 $31,900
Lexus CT $32,050
Audi A4 $32,500
Cadillac ATS $33,095
Saab 9-4X $33,380
Volvo XC70 $33,600
Hyundai Genesis $34,200
Lincoln MKZ $35,925

It’s unbelievable that the Mercedes CLA comes in cheaper than all those luxury competitors. It also leaves me with mixed feelings. On one hand, the CLA’s price opens up a new potential customer base and puts extra pressure on Toyota and GM’s successful Lexus and Cadillac models. It’s also going to make reviving Ford’s Lincoln brand much more difficult. But on the other hand, Mercedes could have hurt its brand image by offering such a “cheap” Benz. And this isn’t just a one-off experiment: The CLA is the first of three models that will hit the $30,000 price target.

That’s not the only cause for concern. As the line between mainstream and luxury blurs, competition for sales will heat up more rapidly. The expansion of this segment could also come back to haunt automakers if demand for luxury vehicles takes a dive, forcing dealerships to increase incentives to stay competitive.

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