Definition Of A Luxury Car

We all know what a luxury car should be: Long, roomy, a big V8 or even V12, lots of electronics. Picture a Mercedes E or S Class, the BMW 7 Series, the Audi 8 or big Lexus or Cadillac. Or even a Lincoln Town Car.
But that's an old definition. Nowadays, it's the brand that counts, so luxury may be a smaller Mercedes C Class or BMW 3 Series or Cadillac CTS. Still, they're not cheap; one of these will cost $40,000.

But there will be a broader definition of luxury or prestige tomorrow, because times are changing again. We are creating new markers to show that we are rich enough, and that we are caring enough, to spend thousands of dollars in the "green" cause. It's quite possible, even likely, that tomorrow's luxury or prestige car will be quite different, and open the door to new competition, too.

Here's what I mean: We have a couple of new car companies, Tesla and Fisker, making expensive electric cars (actually Fisker still is getting ready to produce). The Tesla is a small sports car and sells for $120,000; the Fisker is to go for around $80,000. Those are luxury car prices.

It's likely that our traditional luxury carmakers will produce electric plug-ins, too, and charge more for them than for the big V8s. They may or may not have the performance or room of today's prestige cars--depending on how they are built--but they will be even pricier. New technologies, and lithium batteries, are expensive.

And the luxury brands might make some quite small cars and sell them at relatively high prices for their size. Some of this exists now. Mercedes, for example, has its small A Class car that it sells in Europe but not here, and parent Daimler builds the tiny Smart.

The cost built into these future cars will be more in the engine technology rather than the leather on the seats. But what counts to the manufacturer is being able to charge enough to make a good profit.

We can see a bit of this starting. Mercedes sells its S400 hybrid, with a six-cylinder engine plus lithium batteries, instead of a V8. The car doesn't perform as well as the big-engined Benz but is accounting for 10% of the Mercedes S Class sales in this country.

Mercedes will also start selling cars here with four-cylinder engines in about two years, and later will offer a four to replace the V6 in some prestige E Class models.

This shift to technology-driven luxury opens the door for other manufacturers to go into the low volume but high price markets.

Honda ( HMC - news - people ), for example, built a distinct model that runs on a hydrogen fuel cell engine. Hydrogen and oxygen mix and create electricity that runs the car and the emission is water. The car has been used for tests, but should Honda decide to build one and sell it, the price would put Honda in the luxury field.

Who would buy such a car, which would be expensive but a problem to use because there aren't many gasoline stations selling hydrogen? Rich folks.

A real example: Nissan ( NSANY - news - people ) is going to build an electric car soon. It's called the Leaf. The company hints it will cost $30,000 or so without the batteries (which will be leased separately). The car will have limited use: Recharging will be a pain, and you won't want to visit Grandma in Minnesota in January--batteries don't work so well in the cold.

That's a real luxury car: $30,000 for something that won't work too well. The people who buy these cars won't be those going for a sub-prime mortgage. They are the folks who buy expensive toys and want to show they care about the environment.

Look at the little Smart car. Again, we're talking about a toy for the wealthy. How about the coming Chevrolet Volt electric/hybrid car? It will be priced around $40,000 we hear. Again you can bet the buyer won't be your typical Chevy owner.

Mass-market producers often wish to sell some pricey cars and earn some prestige, too. Chevrolet sells the expensive Corvette. Ford sold the expensive Thunderbird.

Nothing is certain, of course. Small but expensive cars haven't done that well here so far. The Audi A3, around $30,000, has only 3,300 sales here in 11 months. The BMW 1 Series has 10,000 in 11 months while the larger 3 Series has 82,000 sales.

But every luxury carmaker in the world is showing design studies of models with electric or hybrid engines. And mass-market producers, like Chevy and Nissan, are getting into the act, too.