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What's a Badge Worth?

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author photo by Lawrence Ulrich May 2008

Here's a question that buyers of top-shelf, name-in-lights cars usually don't care to confront: How much are you paying for the car, and how much for the brand-name badge? There's no doubt that companies such as BMW, Porsche and even Toyota can charge more than their main competitors. To a point, that's only fair. Build compelling cars, create a reputation over decades, and people will happily scribble the checks.

The only problem is when a company starts to coast, slowing to admire its fine self in the rearview mirror. When that happens today, you can be sure a hungry underdog will race up and bite them in the, um, rear fascia. These David vs. Goliath smack downs are great not only for car buyers, but for the companies themselves. In recent months, some Korean and Japanese companies have been wielding the slingshots against the big boys. If they pull it off, it won't be the first time.

The Japanese Wake-Up Call
Today's whippersnappers might take Japanese sports cars such as the Nissan 350Z for granted. But back in 1969, the idea that Japan could produce anything but cheap econoboxes sparked fits of laughter in Detroit's union halls. The laughing stopped when the $3,500 Datsun 240Z rolled into town — a shapely, affordable Porsche-fighter that became a smash hit. Four decades later (can it really be that long?) the Z is still going strong.

Twenty years later, it was Lexus that gave the status quo a hard shake. When Toyota kicked off its luxury brand back in 1989, some observers scoffed that Japan would dare take on the luxury-car kings in their German castles. At a bargain $35,000, the resulting Lexus LS 400 sedan not only undercut the price of the Mercedes-Benz S-Class by a shocking $25,000, it trumpeted a message that Japan could and would build successful luxury cars.

Just as importantly, Lexus helped wake Mercedes from a fairyland slumber, in which spellbound Americans would continue paying exorbitant prices for cars that weren't appreciably better than the new competition. In other words, paying for the badge, not the car underneath.

What happened? Mercedes was forced to fight back, getting its styling and fabled innovation back on track. Fast forward to 2008, and the Mercedes' lineup is filled with sleek, modern luxury cars it always knew how to build. Everyone won.

The Next Wave
Today companies such as South Korea's Hyundai are movin' in and shakin' up the neighborhood. Its Genesis luxury sedan goes on sale this summer, starting below $30,000. Genesis buyers will be able to get some serious features, including an optional 368-horsepower V8 — Hyundai's first-ever eight-cylinder engine. Genesis also employs the same terrific six-speed automatic transmission as the BMW 6-Series, Jaguar XK and Maserati Quattroporte, models that can cost more than triple the Hyundai's price.

The new Genesis sedan is intriguing on paper, and Hyundai's features and dramatically improved quality have impressed everyone of late. But there's also the status issue at stake. When many luxury buyers are happy to pay more for a brand name, will enough people pay less to park a Hyundai in the driveway?

To test public reaction, Hyundai rounded up more than 1,200 consumers and let them drive and pore over the Genesis sedan — with its badges initially hidden by tape. Trying to guess the identity of the car, some consumers threw out names like Infiniti, Lexus and Mercedes. That's pretty good company for a Hyundai, said John Krafcik, Hyundai's vice president of product development.

"We're looking for buyers who say, 'I don't care about the image. I just want the best car for the money,'" Krafcik said. "And eventually, like the Corolla in the '70s or Lexus in the '90s, other people will start to catch on." Krafcik added that the tanking economy and car sales can only benefit the makers of high-value models.

Suzuki, for its part, will deliver the Kizashi sports sedan to dealers in 2010. With its low-slung grille, the Kizashi borrows a page (OK, more like a chapter) from the Audi styling playbook. But with an estimated 300-horsepower V6, the Kizashi will try to convince people that Suzuki is more than hot motorcycles and lukewarm cars.

Even supercars from the likes of Ferrari and Porsche have underdogs nipping at their Prada-clad heels. The Nissan GT-R goes on sale in June. Known as "Godzilla" in Japan, the GT-R is one fire-breathing monster, with all-wheel drive and 480 horsepower from a twin-turbo V6. I drove the GT-R at Reno-Fernley Raceway in Nevada, and its performance was stupefying: 0-60 mph in a neck-snapping 3.5 seconds and a 193 mph top speed. Once again, the Nissan is stuffed with the kind of technology that makes you question why similar sports cars have to cost six figures and more — other than the fancy name.

The GT-R has already run a 7 minute, 38-second lap at the legendary Nürburgring circuit in Germany. That's the second-fastest lap of any production car in history, trailing only the Porsche Carrera GT — an out-of-production car that cost $440,000. The GT-R, in contrast, will cost just $69,850 when it goes on sale this summer. A lot of money for a Nissan, sure. But not a lot for a Nissan that can hang with sports cars costing two, three, or even four times its price.

Hey, maybe status is overrated. Nissan, Hyundai and Suzuki could all borrow the famous line from The Treasure of the Sierra Madre: "We don't need no badges... "

Lawrence Ulrich lives in Brooklyn and writes about cars. His reviews and features appear regularly in The New York Times, Popular Science, Men's Vogue and Travel + Leisure Golf.

This image is a stock photo and is not an exact representation of any vehicle offered for sale. Advertised vehicles of this model may have styling, trim levels, colors and optional equipment that differ from the stock photo.
What's a Badge Worth? - Autotrader