The Chevrolet Camaro, the Audi A3 and the Price of Success

Perhaps Bob Lutz put it most succinctly. Recently discussing transaction prices for the Chevrolet Camaro, Lutz began by expressing a bit of (positive) surprise, and then quickly went on to the money quote: "It's amazing what people are paying for these."

(Note: The "transaction price" is the amount of money a consumer actually pays for a vehicle; everything else remaining equal, the transaction price on a car that stickers for $30,000 but offers an incentive of $5,000 would be $25,000.)

Now, filled as I am with good will toward all mankind, etc., I'm sure Lutz wasn't calling out Camaro fans as suckers. It's more that General Motors isn't much used to earning much money on its vehicles, and those Camaro transactions are piling it up lately. I've seen numbers flying around that indicate the General is making some $8,000-$9,000 more than it expected on up-level Camaros.

And as long as we're talking about earning coin for GM, Lutz also named the GMC Terrain as a high performer, claiming transaction prices on the Terrain are about $7,800 more than for the Pontiac Torrent, the vehicle the GMC essentially replaced in the GM lineup.

A couple of observations: First, you have to keep it firmly in mind that these numbers do not represent the profit GM is making on these vehicles, they just provide information about how much people are paying for them. No automaker is going to earn a profit if a car's transaction price goes up 25 percent but still remains below its MSRP.

Which brings us to the flip side of the situation: When incentives are figured into the picture, there are a fair number of vehicles out there still seeing transaction prices that are, in fact, less than their MSRPs. That may be good for consumers, but it's clearly not a sustainable way for OEMs — or auto dealers — to stay in business.

It's these factors that make developing the right pricing strategy so difficult for automakers, something that's further illustrated by recent news in the industry's luxury segments.

Let's kick things off with the news that GM is lowering the MSRP on its Cadillac CTS Sport Wagon by a few thousand dollars to make it more competitive against a vehicle that's become a surprising Sport Wagon rival: The General's own Cadillac SRX crossover.

Here's what happened: Cadillac originally didn't expect much cross-shopping between the Sport Wagon and the SRX, so it didn't expect much of a problem when it originally priced the former significantly higher than the latter. I suppose the thinking at Cadillac was that the Sport Wagon would still attract enthusiasts, while the SRX would attract customers who wanted a luxury crossover. It turns out, though, that there is a substantial number of customers who want a Cadillac that can haul some cargo regardless of the vehicle's shape. So, unsurprisingly, they started buying more SRXs — enough to impact Sport Wagon sales numbers.

Something similar can be seen happening at Audi, too, although for slightly different reasons. The Volkswagen conglomerate is on a quest to radically raise sales overall sales in the U.S., and that means every member of the VW family is expected to do its share. The problem is, the family's rich but eccentric uncle — that would be Audi — has been having some difficulties.

For example, the company has had to stop production of its Audi A3 hatchback due to weaker-than-expected sales. There are likely a number of reasons for this, including American's well-known aversion to the idea of premium hatchbacks, but some internecine competition with the Volkswagen Golf is definitely having an impact. While I'm sure those four rings on the A3's snout mean something, it's obvious they don't mean customers will pay a $10,000 premium over the Golf to get them.

And I'm thinking the difficulties with the A3 are at least partially responsible for some other Audi pricing maneuvers. Take the Audi S4. This mid-size sport sedan does to the Audi A4 pretty much what the M3 does to the BMW 3 Series, and last year it packed a sticker price approaching $60,000 to go with its monster V-8. The 2010 model, on the other hand, makes due with a supercharged V-6 and a sticker price that begins well below $50,000.

Yet, as another example of how tricky this pricing stuff is, Audi is also preparing to go down the "four door coupe" route with a new A7 that would, per Audi, sit between the Audi A6 and the company's flagship sedan, the Audi A8. In UK motoring mag "AutoCar," Audi design head Achim Badstubner is quoted as saying, "In Germany, there is nearly 20,000 Euros [more than $28,000] between the most expensive A6 Avant and the cheapest A8. The A7 will fill that gap."

Okay, that sounds great, except the A6 Avant ("Avant" is Audi for "station wagon") isn't the most expensive member of the A6 lineup. A quick trip to Audi's U.S. Web site shows the Audi S6 (the performance version of the A6) happens to start at an MSRP that's $1,550 more than the base A8.

I'm no math expert, but negative $1,550 would seem to be an awful small gap into which to fit a new model, even for the expert engineers at Audi.

But hey, like I said, that pricing stuff sure gets tricky.