30 June 2010

Maintenance-Free Luxury

The Wall Street Journal
Lots of Cars Have Leather Seats and iPod Jacks. Now Pricey Brands Want to Reel You In With Brake Pads at No Cost

The hottest new luxury car feature for 2011 isn't a sound system or another 50 horses under the hood. It's something you'll appreciate best when you're not driving: "no-cost" maintenance.

General Motors Co.'s Cadillac, Ford Motor Co.'s Lincoln and Tata Motors's Jaguar have declared in announcements during the past few weeks that they'll offer no-cost maintenance to customers who lease or buy new cars. Lincoln says its offer ends Sept. 7. Cadillac and Jaguar say their no-cost maintenance plans start with 2011 models, which start arriving later this summer.

These brands are jumping on the no-hassle maintenance bandwagon that BMW AG has been riding for more than a decade, and Volvo Cars began promoting last year. There's fine print to be considered—more on that in a minute. But the flurry of no-cost maintenance deals reveals something about the state of the luxury car business.

Luxury cars aren't created equal when it comes to technology and quality, but they're getting very close to that ideal.

Long ago, the simple things that used to distinguish a luxury car from a plebeian Ford or Chevrolet lost their exclusivity. Leather seats? You can get those on a Chrysler minivan. Tech-savvy connections for your phone and iPod? One of the slickest systems in the business is available on a Ford Focus subcompact. Navigation systems? Sure, the fancy systems built into luxury cars and SUVs are nicer than a Garmin or a Tom Tom. But those portable navigation systems can deliver a lot of information.

The ride quality, handling precision and power available from a BMW 3 series or a Cadillac CTS-V coupe aren't to be found in a run-of-the-mill mass market car. But the gaps in capability among the leading contenders in the main luxury segments—compact sedans, sport utilities, performance coupes—are narrower each year.

Luxury car makers now must compete not just over hardware, but over the "soft," human dimensions of the customer experience.

Among the first Cadillacs to come with the new maintenance offer will be the 2011 Cadillac CTS and CTS-V coupes—cars directly aimed at BMW's high performance franchise. "You don't just buy a car, you buy everything else that goes along with the brand," says Cadillac spokesman Nick Twork.

This is where "free maintenance" comes in. Luxury car buyers—especially newcomers to elite European brands—had reason to fear that maintenance could put a nasty dent in their checking accounts. The more technologically marvelous luxury cars become, the scarier the thought of paying to fix that technology if it gets glitchy.

"For years, the research has been definitive," says Dan Creed, vice president of aftersales for BMW North America. "It's nice to know you will not see a bill for four years or 50,000 miles except for gas and tires. It's both a clincher and it overcomes reluctance" to buy.

Still: "From a customer perspective my cost of ownership is known to a degree," says Chris Sutton of J.D. Power and Associates, a market research firm.

In other words, anyone wealthy enough to buy a BMW or a Cadillac or any other luxury car knows the maintenance isn't really "free." The cost is wrapped into the price of the car, as a kind of insurance.

One reason BMW and some other manufacturers are opting to eliminate out-of-pocket maintenance costs is that they want the cars kept up properly —by their dealers—so that when they come back for resale at the end of a lease, they fetch top dollar as certified pre-owned cars. BMW dealers sold 114,423 cars under its certified pre-owned program in 2009, up 9.5% from the year before and a new record. Sales of these well-maintained, three- and four-year-old cars are a significant source of profit for BMW dealers, and help support resale values for all BMW vehicles.

Not all no-cost maintenance offers are the same. BMW, as Mr. Creed says, covers all maintenance, including brakes and wipers.

Cadillac's "Premium Care Maintenance" offer doesn't cover brakes, and is limited to "scheduled oil changes, tire rotations, replacement of engine and cabin air filters, and a multi-point vehicle inspection."

Volvo has a "Safe + Secure Coverage Plan" which covers the first eight scheduled maintenance services for five years or 60,000 miles—including oil and filter changes, and replacement of brake pads and rotors and windshield wipers.

Lexus covers just the first two rounds of scheduled maintenance. Audi prefers to sell customers a maintenance plan separately, with a list price of about $790. Mercedes-Benz followed BMW in 2000 and began offering no-cost oil changes, fluid and filter replacements. But dealers began encountering unhappy customers confused about what was and wasn't covered, Mercedes spokeswoman Donna Boland says via email. Now, Mercedes offers pre-paid service packages dealers sell or roll into leases. "The sky didn't fall," Ms. Boland said.

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