Cigar Aficionado

There's a midway feel to Switzerland's Palexpo conference center when the annual Geneva International Motor Show rolls into town as scores of automakers jam onto the crowded floor hawking their wares. During the event's two-day press preview, giant video screens, blaring sound systems and some nearly naked women vie for the attention of nearly 10,000 automotive journalists from the far corners of the globe.  

But it wasn't hoopla that drew a crowd to the early morning news conference at the small Porsche display this year-just a top-secret project tantalizingly hidden under a heavy drop cloth. Surprisingly few secrets are kept, at least for long, in the auto industry, but Porsche has a knack for delivering such surprises as the unveiling of its first sports-utility vehicle, the Cayenne, a decade ago. But what CEO Michael Macht unshrouded wasn't as earth-shaking at first glance: a sleek two-seat convertible built for speed, which is by rights the hallmark of the brand.

But the real story was what Porsche had hidden underneath the carbon fiber skin of the 918 Spyder Concept: a sophisticated plug-in hybrid drivetrain that could move the concept car from 0 to 100 kmh (0 to 62.5 mph) in just 3.2 seconds on its way to a top speed of 198 miles per hour, while still delivering a jaw-dropping 78 miles a gallon. Equally impressive, the 918 prototype had a large enough lithium-ion pack on board to let a driver plug into a standard electric outlet-or a high-voltage quick charger-and get 30 miles on battery power alone. "This way, you can go very fast and it still would be socially acceptable," said Macht. 

A production version of the car is under serious consideration, and we can expect to see its advanced drivetrain-a 500-horsepower V-8 combined with a pair of electric motors, one on each axle, that together develop another 218 horsepower-on an existing model-think 911 or Boxster-within the next two to three years. And Porsche is not the only luxury brand to be lured in by the hot topic of the auto industry: "electrification."

It isn't just such mainstream players as Ford, Toyota and Hyundai that are going green, but the top tier of high-line manufacturers, a list which includes the likes of Audi, Mercedes-Benz, BMW and even Ferrari. Driven by a variety of pressures, from tough new emissions and clean air rules to shifting social tastes, the luxury market is going green and electric propulsion is going to be an essential element in that transition. 

Nor is this the only direction in which the established high-line car makers are turning to distinguish themselves in a market that is providing increasing pressure from below. Expect to see advanced electronics, smaller formats and more personalized choices among the options available at luxury car dealers in the near future.

The demand for ever-present connectivity is spurring the market segment. Digital technology now differentiates high-end products more than the traditional handcrafted wood and leather features. By some estimates, electronics will for more than a third, and perhaps nearly half of the price tag of a luxury car in the coming decade. 

Staying on top of the digital race will be a challenge for even the best luxury makers, however, as new entrants and such plebian brands as Hyundai shake the very definition of luxury by aggressively reaching up-market. In our new era of frugality, high-line marques may need to find new ways to justify the significant that customers were once willing to pay just to display, for instance, the Mercedes tri-star or the BMW spinner. 
  
Small is Beautiful? 
Automobile luxury has traditionally been sold "by the inch and pound," according to the analyst Stephanie Brinley, but "small cars are starting to gain." The Geneva show provided a window into this changing world.  

Perhaps the most stunning example shared the Aston Martin stand with more familiar offerings-the DB9 and V8 Vantage-from the brand. At 120 inches, nose-to-tail, and producing 97 horsepower, the Cygnet is dwarfed both in size and output by its brethren, each of which is about half again as long and more than four times as powerful. Set to launch in 2012, the new model was developed as part of an unusual partnership with Toyota. The 2+2 hatchback is billed as a luxury urban commuter car, and considering the shift in global markets, it makes sense. From Berlin to Beijing, the world's population is moving to big cities, where space is a luxury and high performance is becoming increasingly irrelevant.  

"Many of our customers have need for a small car for urban and city use," contended Ulrich Bez, Aston's CEO. But the lavish interior of the t-effort vehicle is a far cry from Toyota's own IQ minicar. Cygnet is swathed in two-tone leather, offset by piano-black and aluminum surfaces and an Alcantara headliner. And it's loaded with technologies that the British marque believes will justify a price tag in excess of $35,000, easily twice what a mainstream offering would go for. 

Audi introduced a commuter car of its own in Geneva, the new A1, a two-door hatchback that measures barely 13 feet, nose-to-tail. Company officials expect it to do particularly well in the cramped confines of urban Europe, as well as in some of the emerging markets in Asia, but hasn't yet planned to bring it to the United States. A wise decision, contends Jim Hall, of 2953 Analytics. Luxury buyers, he believes, may be as interested in fuel economy as anyone else, but size is still a measure of status and that won't easily go away. 

That, however, poses a new puzzle for makers, especially those who are appealing to the most affluent of the world's automotive buyers: how to deliver products that meet customer expectations but still comply with increasingly tough government mandates-including America's tightened fuel efficiency rules and Europe's new limits on CO2 emissions? 

Bentley's approach is to focus on alternative fuels. Starting with the 2011 model-year, all of its products, including the all-new Mulsanne sedan, will be capable of running on E85 ethanol. BMW, meanwhile, is expanding its fleet of hydrogen-powered 7-Series sedans. The self-styled producer of the "ultimate driving machines" insists that the lightweight gas is the ultimate clean fuel, since a hydrogen car's exhaust consists of nothing but water vapor. 
  
Plug In, Turn On 
But getting the world ready for hydrogen power is no easy task, and few expect the alternative fuel to make a serious dent in the market until well into the middle of the new century. In the nearer term, the emphasis is shifting to electrification, and electric vehicles of one form or another could be found everywhere you looked at the Geneva show. "The battery cars of the past weren't very sexy. Nobody cared," said Peter Schwarzenbauer, the Volkswagen AG subsidiary's global marketing director. "Now it's sexy, and the prime topic" among consumers and automakers alike.  

Yet Thomas Weber, the Daimler AG board member in charge of technology asked "Does sustainability mean we have to build small cars?" He answered he own question: "Not necessarily," and pointed out the example of the S500 Blue Efficiency sedan, which Mercedes unveiled last September at the Frankfurt Motor Show. With its advanced hybrid power train, the battery version of the maker's flagship S-Class sedan gets more than 60 miles to the gallon. 

One advantage luxury makers have, according to Weber, is that "our customers are more able to afford" these new technologies and, in many cases, are more interested in being on the cutting edge. 

Tomorrow's luxury cars will feature a broad spectrum of technologies designed to improve the efficiency of the conventional internal combustion engine or replace it all together. BMW, for example, has introduced a "smart" alternator that operates only when electric demand is high, otherwise reducing mileage-robbing frictional engine losses. The new Porsche Panamera's engine automatically shuts down when you stop for a light then instantly restarts as you lift your foot off the brake. Meanwhile, the maker will offer a hybrid system for the second-generation Cayenne that can run the SUV on battery power for short distances, at speeds up to 98 mph.  

The next step is the plug-in hybrid. The svelte Fisker Karma, another example in the same the niche that Porche plans to fill with its Spyder Concept, is expected to reach market in less than a year. The California-based start-up Fisker Automotive is the brainchild of Henrik Fisker, best known for his work as a designer for Aston Martin, where he penned the striking DB9. The company is nothing if not ambitious. The low-volume Karma will be produced in Finland, but Fisker recently used a federal loan to purchase an old GM assembly plant in Delaware, and plans to produce a second model, codenamed Project Nina, by mid-decade. 

Another California pioneer is Tesla Motors, whose chief executive officer, Elon Musk, was a founder of PayPal and SpaceX, a private space transport company. "The reason I put so much money into the creation of Tesla was to be a catalyst in the electric car revolution," says Musk, adding that, "it's been a ion of mine for 20 years." The company's first product, the Roadster, is a $109,000 sports car that can match the performance of a Porsche 911. Several additional models are planned. 

But the Roadster is a pure battery-electric vehicle, or BEV. Luxury makers seem to be particularly interested in using this technology for sports cars and other performance models.  Mercedes-Benz, for one, is developing a BEV version of its new, gull-winged SLS, while Audi may bring to market a version of its all-electric concept, the e-tron, which bears a striking resemblance to the gasoline-powered R8 supercar. 
  
Upstarts
Shortly after World War II, ship builder Henry Kaiser decided to enter the auto industry, bragging that he was ready to invest $1 billion in his new venture. Apocryphal, perhaps, but a Detroit competitor reportedly responded, "Congratulations. Give that man one chip." The price of entry is enormous, which is why so many new nameplates, including Kaiser, have failed over the decades.  

Tesla and Fisker are betting that the current focus on the environment will open an opportunity for them. While the recently retired GM vice chairman Bob Lutz credits Musk and Tesla, "for getting people to focus on battery power," the two new California makers are anything but certain to survive. However, if they do, they could dramatically shift the luxury landscape. 

And, even if they don't, others will try to enter the luxury market. Some may succeed, as Lexus has done. It's hard to recall the derision aimed at the Toyota division when it showed off its original LS400 20 years ago-all the more so considering that Lexus is today the largest luxury nameplate in the U.S.

Hyundai is hoping to mimic that success, and has already scored big with its first up-market entry. In January 2009, the Genesis was named North American Car of the Year by a jury of 50 U.S. and Canadian auto writers. Later this year, Hyundai moves even more up-market with the Equus. While Genesis was targeted somewhere between a Mercedes C- and E-Class, the new model takes unabashed aim at the top-line S-Class. Unlike Lexus, Hyundai has chosen to stick with a single brand, but if Equus is anywhere near as successful as Genesis, that could change. John Krafcik, the CEO of the Korean maker's U.S. operation, hints that the idea of opening a second luxury channel is "still under consideration." 

As they did two decades ago, established luxury makers publicly scoff at that idea, but privately, there's clear concern-and not just about Hyundai, Tesla or Fisker. In years past, upscale buyers were more than willing to invest in a badge, said analyst Brinley, but these days, even luxury buyers are more cautious. And that's a situation made all the more troubling because the gap between mainstream and high-line brands is becoming a lot less definitive. 
  
Digital Delights
Today, you can get more than 400 horsepower out of a Mustang. Leather seats? Try Ford's new Fiesta subcompact. If that's all you want it'll cost less than a custom paint job on a Rolls-Royce. So, what defines today's luxury car? More and more, it's digital technology, whether in the form of a so-called "infotainment" system, such as the 2200-watt blaster in the new Bentley Mulsanne, or an advanced safety device, such as the radar-guided cruise control and emergency braking system that is on the new Mercedes E-Class coupe. The technology not only adjusts itself to the flow of traffic, automatically slowing down or speeding back up again, but will hit the brakes hard in an emergency if the driver hesitates. 

A significant area of growth is in "connected" technologies, said Ian Robertson, BMW's global sales chief. Today, Bluetooth is the norm, rather than the exception, as is real-time traffic and weather, never mind in-car navigation. "And there'll be hugely more offerings in the future."  

In whatever form it comes, estimated Robertson, the cost of the electronics in a typical luxury car will soar to anywhere from 30 percent to as much as 40 percent of the sticker price by 2015. This is a range most experts concur on. Traditionally, luxury makers have led the way, introducing breakthroughs like antilock brakes, or ABS, electronic stability control and in-car mapping. But it's becoming more difficult for these makers to maintain that lead. With the 2009 launch of the all-new 7-Series, BMW unveiled a new technology designed to watch for traffic as you backed out of a mall parking spot. Barely a year later, Ford introduced its own Cross-Traffic Alert on the reborn Taurus sedan. 

It's much harder to maintain your lead with digital technology, sighed Ernst Lieb, CEO of Mercedes-Benz U.S. One reason is that luxury manufacturers have tried to reduce their own costs by turning to outside suppliers, such as Bosch or Delphi, to develop the latest digital whiz-bang. The trade-off is that a company like Mercedes only gets an exclusive on new technology for a short time. So the maker is rethinking its "core competencies," said Lieb, with, "a trend towards in-sourcing to try to get ourselves a little bit of advantage" back. 

Translation: look for luxury makers to fire up their in-house development operations to maintain a lead on next-generation electronics. At least, that would be the theory. But are there other ways to differentiate a Mercedes from a Mazda?
  
The Return of the Individual
By its very nature, luxury connotes exclusivity, and that's likely to be something high-line manufacturers stress with a renewed emphasis. Walk through the BMW plant in Dingolfing, a suburb of Munich, and not only its size, but its complexity will overwhelm you. The plant, which produces models including the 7-Series and next-generation 5-er, enjoys a huge degree of flexibility. Plant officials estimate they can produce 10 to the power of 64 variants of just the flagship 7.  

In the U.S., buyers have traditionally settled for whatever is on the lot when they decide it's time to buy. BMW is trying to encourage its American customers to follow a more European model, customizing their orders. (See sidebar, page 105) The company allows a buyer to make changes up to six days before the vehicle begins its journey down the assembly line.  

BMW is not the only maker offering increased personalization. The in price, comes with a payoff: a vehicle that reflects personal tastes, not the best guess of some faceless dealership sales manager. 

A contrasting approach to individualization is that of Hyundai, which will carefully select only a small number of those in its current retail network to handle the new Equus. Each Equus will come heavily equipped, but provide few options. The Korean maker's strategy is focused on the sales and service side, with "innovative customer services," says CEO Krafcik, designed "to save our customers time." 

Chosen retailers will set up a distinct showroom-within-a-showroom dedicated to Equus, and hire separate staff. Those sales personnel will, at the customer's request, go to his home or office to pitch the new product. Meanwhile, when service is needed, an owner will be able to opt for home or office pickup and drop-off, and a Genesis sedan will be provided as a loaner vehicle while the owner's car is in the shop.  

This strategy, according to some industry-watchers, could significantly transform the way carmakers and car buyers interact. Hyundai even plans to shift the simple act of scheduling service appointments. Rather than a conventional print owner's manual, each Equus will come with a large, iPad-like tablet. You'll not only be able to figure out how to operate the fold-out rear seats, but tap a button to automatically set up a service call. 

Once the world of luxury cars moved quite slowly. The level of change has reached a frenetic pace and is likely to accelerate as luxury makers race to stay ahead of not only their direct competitors. but even more mainstream brands. The good news for buyers is that tomorrow's luxury car will offer more features, more technology, and more choices-and the ability to customize the model you want in a way that's truly yours alone.

Contributing editor Paul A. Eisenstein also edits TheDetroitBureau.com.

YOUR OWN PRIVATE BMW

Patience is a virtue, it's long been said. But don't tell that to the typical car buyer. Whether you're buying a Mini or a Rolls-Royce, odds are, when you're ready to buy, you'll walk into the showroom and buy something straight off the lot, as long as it's reasonably close to what you have in mind. Industry studies show that but a small minority of motorists are willing to place an order and wait until it arrives. 

But that's a mindset the folks in Munich are hoping to change. Hidden in the back corner of a faceless Bavarian industrial complex are the offices of BMW Individual. Where an assembly line once ran you'll now find a collection of sedans, coupes and crossovers, along with displays showing the many ways they can be customized to reflect a buyer's most heart-felt desires. 

"Individual is one of the pillars of our business," says Christine Fleischer, BMW's lead marketing consultant. Perhaps, but it's been something the automaker hasn't talked about much until now. 

As far back as 1992, BMW started to do custom work for its most demanding buyers-like the designer Karl Lagerfeld, who integrated some unusual fabrics, as well as a fax machine and a small refrigerator, in his 7-Series. That last feature is now on the standard option list on some models, but BMW will transform one of its mass market models into a personal statement in plenty of other ways. 

There are several levels of customization, starting with what BMW calls Individual Composition. Think of them as an expanded palette of options, such as uniquely stitched leathers and special wheels, to which affluent buyers can upgrade. On the 7-Series, that adds another $7,700 to the sedan's basic price tag.

Then there are the one-offs, like what Fleischer calls "the Kona car." One customer, who traded in exotic Hawaiian woods, provided the automaker with his own lush veneers, matching them with tropic pastel leathers. That 7-Series went for $130,000, the custom work ing for about $30,000 of that.

If you have enough money, BMW will modify just about anything you can imagine, but be forewarned the price gets pretty steep when you start talking about something seemingly simple like seats or bodywork. That would be because the automaker has to comply with regulations whenever a customized vehicle is delivered. Even something as mundane as a new seat might require the company to conduct a crash test. And, for some work, that might require the use of an aftermarket tuner or customization.

But there are advantages to working with the factory, where possible. Among other things, you'll have the comfort of knowing the work carries a warrantee.

BMW is not the only automaker entering the custom space, of course. Mercedes-Benz has been gaining ground with its Designo division. And then there are the ultra-luxury brands, like Rolls-Royce and Bentley, where they'll even whip up a custom paint or leather shade to match your favorite tie or lipstick. Just be ready to sign the check.