Kia's $60,000 Shot at Luxury Can't Find Its Way

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Kia’s (000270:KS) expensive attempt to swipe a slice of the luxury car market, the K900, is a stunning, sinuous tank. It’s also, at first blush, a bit of a bust.

To be sure, this was a bold strategy for a company built on value-oriented vehicles. Kia admitted as much when it unveiled the swanky sedan at the Los Angeles Auto Show in November. At the time, Tom Loveless, executive vice president of sales for Kia North America, pitched the car as the company’s boldest statement yet. He told the crowd that the K900 is “the ultimate expression of our challenger spirit,” and said it “symbolizes how far we have come.”

Alas, it’s not far enough to get the $60,000 vehicle into many driveways. In its first six months of sales, a period when new models typically greet a wave of expectant customers, the K900 has won only 1,050 U.S. buyers. In the same period, BMW (BMW:GR) sold almost 31,000 of its similar-sized 5-series sedans and Mercedes (DAI:GR) rolled 38,000 E-Class cars out of dealerships. Even the Hyundai (005380:KS) Equus, the K900’s opulent cousin, was snapped up almost twice as quickly.

Kia has been cagey about its expectations for the flagship sedan, and the company didn’t respond to requests for comments this week. But it spared little expense in letting drivers know it was zooming into the luxury car game. The Korean company sprung for a lengthy Super Bowl ad—complete with an opera-singing Laurence Fishburne reprising his Matrix role and telling the masses to “challenge the luxury you know.”

Customers either weren’t blown away or didn’t care to go down the Kia rabbit-hole. The pedestrian sales results raise an important question for the auto business: Was the K900 just a dud, or is the “affordable luxury” approach one that just doesn’t work for cars?

The short answer: a little of both. Critics do not love the K900. Car and Driver gave it 2.5 stars out of five, docking Kia for numb steering and a soft suspension. “We’d rather spend less for a car that is more about driving than gadgets,” the magazine wrote. Most notably, the K900 doesn’t come with all-wheel-drive, a feature that well-heeled buyers have come to expect.

Still, on a list of “luxury” features, the K900 checks virtually every other box, from yards of buttery leather upholstery to “hydrophobic” windows and blind-spot sensors.

Bill Visnic, a senior analyst at Edmunds.com, drove one last week and came away with one over-arching impression: “limo-like,” which is to say the ride was overly soft and the features didn’t seem to stop.

“It’s a nice car. It’s got everything you would kind of expect,” Visnic said. “It’s just the eternal quandary of how to break into the luxury car market.”

Kia’s equation on that front was simple: a big, refined ride with lots of features for $20,000 to $40,000 less than the German brands cost. The thesis—underscored with the Fishburne ads—was that a bunch of buyers would be willing to save some bucks in exchange for a less lustrous logo on the hood.

The strategy certainly makes sense, but it’s hard to discount the value of a blue-chip brand. A big part of the market is about the prestige—the neighbor-baiting braggadocio that comes with a BMW or Benz sitting in the driveway.

There’s also a fear factor. People who have finally scratched together enough money to buy a luxury car are as worried about buying the wrong car as they are about choosing the right one, according to Visnic. “Buying a BMW is an easy decision,” he said. “It’s validating.”

Kia has a separate problem with affluent buyers who truly don’t care about brands: they’re fine with buying really nice Fords (F) and GMs (GM). By undercutting the luxury leaders on price, Kia slotted the K900 was dangerously close to the most polished mainstream vehicles.

A Buick Lacrosse with all the trimmings—a big engine, Bose speakers, adaptive cruise contro,l and a giant moonroof—tops out around $46,000. Buyers can even get vaunted German engineering for the same amount. The top of the line Volkswagen (VOW:GR)CC—the one with a V6 engine—starts at $43,140. In fact, a crowd of companies are doing near-luxury (or opulent mainstream) quite well, including Nissan (7201:JP), Subaru (9778:JP), and Toyota (TM).

Not surprisingly, Kia has had to move its already affordable supreme sedan even further down-market. In the U.S., the average incentive on the car shot from $2,700 in April to $6,300 in August. In short, the company has had to add more value to its value proposition, and it still isn’t selling many of them.

Cadillac, meanwhile, is moving prices in the other direction. And the Mercedes S-Class is still the paragon of the leviathan sedan segment, with sticker prices around $107,000.

There is, however, a silver lining under the swanky new Kia. Michelle Krebs, a senior analyst at the car-buying platform AutoTrader.com, said people kicking the tires on the K900 aren’t even considering BMW and Mercedes. The vast majority are comparing it to other Kias and Hyundais, which is exactly what an aspirational flagship car is supposed to do.

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