A lot of people simply accept that you need to dig into your pockets deeper if you want to buy a luxury car. Have you ever stopped to wonder why that was the fact? In this guide, I’ll detail 15 different reasons why luxury cars are actually so expensive. You might already know some of the reasons, but I’m sure that there will be a few that catch you off-guard.
Luxury cars are so expensive because they’re built better, use more expensive materials, and opt for high-quality parts. They also put extra time and attention into the building process, inspection process, and quality control across the board. Their staff is highly trained and typically has a lot of experience which adds to their operating costs.
What Is a “Luxury” Car?
A luxury car is a sub-section of vehicles that offer more comfort, performance, and curb appeal than standard sedans. Some of the more common luxury brands are BMW, Audi, Genesis, Lexus, and Mercedes-Benz. There are also some more exotic brands that I would call “ultra-luxury”, like Ferrari, Porsche, Rolls Royce, and Bentley.
However, just because a car fits into one of these brands doesn’t mean that it’s automatically a luxury car. Porsche and BMW have plenty of sports cars in their catalog.
The difference is that luxury cars will offer more convenience, comfort, and quiet to the driver. A classic example is to sit in a Lexus, turn down the radio, and drive on a highway.
Everything feels a lot softer and more comfortable. Not just the leather seats, but all of the accents in the car and the way the vehicle physically drives. This, in my opinion, is how you know if a car is a luxury car.
15 Reasons Why Luxury Cars Are So Expensive
Without further ado, I’ll get into 15 different reasons why luxury cars are so expensive. This isn’t a comprehensive list, and there are a few less important reasons that drive the higher price tag, but I’ll cover most of the reasons.
1. Production Is Often Limited
One of the biggest reasons is because these luxury cars are not made in the same quantities that the tried-and-true Camry is, for example.
Let me present a few figures (for my fellow math nerds).
In 2017, Lexus sold 51,398 of their model ES vehicles in America — the ES is the most popular luxury car in their lineup. These manufacturers aren’t as open about how many vehicles they made during the production year, just how many they sold. For the sake of argument, let me round that figure up and guess that Lexus made 55,000 ES cars in 2017.
During the same calendar year, Honda sold 377,286 Civics in America. If we make the same assumption and guess that Honda actually made 380,000 Civics.
The quantity difference between these two cars is almost 7 times. There were almost 7-times more Honda Civics manufactured than the Lexus ES.
With limited production, manufacturers need to price their vehicles higher to cover the costs of operations and the facility.
2. Extra Details Take Time
If you look at a car fanatic’s video reviews on YouTube, you’ll see them point out little details that you might not have noticed. Something like a hand-carved accent in the car, or hand-stitched leather upholstery.
All of these little details hike up the price of the vehicle. It takes more time, expertise, and quality to add these details — all of which will add to the final cost of the vehicle.
Mass-producing a part on an assembly line or in a warehouse somewhere is one way to keep costs down. The downside is that the quality and final appearance of the part might suffer.
Since luxury cars are made for people who notice the details, every detail needs to be perfect.
3. Laborers are Typically Highly Trained
I heard a rumor a while ago that Ferrari has some very elderly gentleman that would still sew together some leather piece by hand, as he had done for Ferrari for decades. When it comes to these more luxurious brands, it’s common to find highly-trained laborers putting together the car.
Even if you ignore this elaborate example, you’ll find a dozen other examples like it. The assembly line in a luxury factory often has decades of experience, tons of training they have to go through, and they have a ton of skill in their craft.
Since things are being handmade in the facility, the working staff needs to be experienced and talented.
This talent doesn’t come cheap. It means that Rolls Royce needs to pay more, and that will be reflected in their higher selling prices.
4. The Different Materials Used
Another thing to note is that the same materials aren’t used in a Civic and a Porsche. Porsche will opt for more expensive materials like genuine leather, carbon fiber, and titanium. A Civic will stick to less expensive options like plastics, fabric, and steel.
Better materials cost more money, and they’ll cost consumers more as well.
If a salesperson is highlighting all of the cool materials used in the car you’re looking at, prepare yourself for a big price tag.
5. Added Design Time for Curb Appeal
Before the assembly line starts putting together parts, a team of designers will put together the details and finalize the design of the vehicle.
Luxury cars (across the board) look better than entry-level sedans. Remember, the manufacturer is trying to attract people with deep pockets and a sense of taste, so the curb appeal is a huge deal.
Just like hand-making a car, designing it can get expensive if you have talented people on the team. A car might go through weeks and months of design work before the first prototype is ever made. Those precious manhours are being charged to an expensive team of design experts that are leading the effort.
This is another benefit that luxury cars have — they can afford to be the sleekest car on the road, as long as they raise the price of the vehicle to accommodate for those extra design hours.
6. You’re Paying for the Badge
I was trying to avoid this fact, but at some point, it has to be mentioned: part of why a BMW is so expensive, is because it’s a BMW. They’ve spent the better part of a century and countless dollars making sure their name was synonymous with power, luxury, and beauty.
Today, they get to reap the benefit of all the hard work. Some people will spend more for a BMW simply because it’s a BMW and for no other reason (believe me, I test drove some less than stellar BMWs in my time).
In the grand scheme of things, the manufacturer is never going to admit that. I would just love to know why a Lexus ES 350 is more than $10,000 more expensive than a Toyota Avalon, a car that shares almost everything in common. I know there are a lot of luxury upgrades that go into the Lexus, but the badge certainly adds even more money to the final price.
7. Better Performance and Tuning
If you’ve driven a luxury car, you know that they have a certain level of engine and suspension tuning, road performance, and feel that other cars don’t. I recently drove 6 similar luxury cars looking for a new daily driver, and all of them felt so refined and polished.
On top of that, they typically have an impressive engine under the hood. They’ll lay down unexpected track times and 0-60’s.
With better performance comes more expensive components and a higher price tag. This is one of those reasons that you can’t argue with — the car performs better, so it costs you more.
8. Extra Safety Features
On top of the upgraded performance, you’ll also notice a lot of extra safety features that come standard on luxury cars. Some cars show a live feed from a camera on your side mirrors to show you your blind spot without the need to turn around.
Others have sensors that detect people and cars around you, and automatically apply the brake when you get too close. Plus, most luxury cars have as many airbags as the designers could physically fit into the vehicle.
Safety leads to ease of mind when you’re driving a car and shopping for one. I have family members who buy a car based solely on the safety features and IIHS rating. Yes, my safety-conscious family drives either a Volvo or Subaru, how’d you guess?
Regardless, safety is a huge consideration when it comes to buying a car. As I mentioned, it could even be the driving motivation behind a purchase. Not only does this lead to higher demand, but the added features also come with a cost. As a consumer, it means that you have to be willing to spend more for extra safety.
9. High-Quality Parts are Used
Even the parts that go into a luxury car are more impressive than a typical car. They use parts and materials that are higher quality than entry-level vehicles.
They do this for a number of reasons. It increases the reliability of the part, makes it stronger so it can handle the extra horsepower under the hood, and makes your car run smoother.
The only downside is to be expected: the parts are more expensive. As a reminder, the car’s MSRP is determined by the sum of all the parts plus some extra variables. In other words, more expensive parts will increase the selling price of the vehicle.
It also increases the vehicle’s value. Having high-quality parts under the hood is a bragging feature of any car, and it’s definitely worth the extra (in my opinion).
10. The Demand Is Much Higher
If you combine a high-quality vehicle, limited production, and a desirable car brand, you’re left with a vehicle with higher demand. If you know about supply and demand, you already know that a higher demand warrants a higher selling price.
Since buyers are desperate to buy a product, the seller can raise the price and people will still buy it. Compare it with a sole gas station on a busy road — since there aren’t more gas stations to choose from, buyers will spend more on gas.
I understand that the logic is a little circular here. Luxury cars are expensive because people buy them, and people will buy them because they’re expensive (due to the quality, desirability, etc.). Either way, it’s a driving force behind the price.
11. Tons of Added Technology and Features
Beyond just safety features, a modern luxury car has a ton of creature comfort features that you can’t find elsewhere. Additions that make your life easier when you’re behind the wheel.
It’s common to find heated seats, massive sunroofs, and buttons to perform different tasks around the cabin. Something like dual-setting climate control in the cabin is commonplace in a modern luxury car. You’ll also find massive touchscreen infotainment systems in the middle of most luxury cars nowadays.
All of these features and additional technology add up to a bigger sticker price. For one, the added parts will increase the price, but these features also make the car more sellable and marketable, further increasing the demand and price.
12. Added Inspection and Quality Control
As I mention added steps that increase the price, I should bring up the extra inspection steps and quality control that goes into most luxury cars.
Manufacturers don’t want to release a defective car, especially since they’re charging so much for each vehicle. To cover their bases, each car typically goes through a pretty extensive quality check phase.
During this phase, inspectors will go through a multi-step inspection to ensure everything is in the right place and functional. This is a common step for any manufacturer since it helps prevent defective parts from getting shipped to the customer.
The only difference here is that luxury brands tend to have more rigorous inspections and checks. From what I understand, certain manufacturers will even inspect incoming material before they use it to make physical parts of the car. Doing this helps them keep their reputation by always delivering a high-quality car that was assembled perfectly.
13. Added Insurance Costs
If you’re looking at the long-term costs of owning a luxury car, you need to consider the insurance costs. Since the vehicles are more expensive and their parts are more expensive, repairing and replacing the vehicle costs any insurer more.
These factors come together to make up the insurance costs for covering a car. To put it simply, luxury cars are more expensive to cover, so you’ll pay more for insurance.
In my own personal life, the insurance difference has been close to $100 more a month (from an entry-level sedan to a luxury vehicle). The rates can differ a lot depending on your situation, but this number should act as a good rough estimate for you.
14. Replacement Parts and Maintenance are More Expensive
Not only is it more expensive to insure a car, but it’s also more expensive to replace, maintain, and repair your vehicle. Even a simple oil change could cost you more if you need to work through a luxury-specific auto shop.
Beyond that, all of the high-quality parts of your vehicle are going to be more expensive to source and buy. Junkyards have fewer luxury cars, so that’s often not a possibility.
I’ve actually been to an auto shop in the past that refused to work on luxury brands for whatever reason. There are certain shops that have luxury car experts on their staff, and they charge a lot more for their services.
At the end of the day, it’s more expensive to fix a broken luxury car. This adds to the overall cost of owning a luxury vehicle over time.
15. The Target Market Doesn’t Mind Paying
Finally, it’s worth mentioning the audience that these brands target. If you want to generalize and stereotype a luxury car owner, they’re wearing an expensive watch, have a nice job, and live in an impressive house. These people don’t mind paying more for a car that can be used as a nice status symbol, fun-to-drive, comfortable vehicle.
As a result, auto manufacturers might increase the price to make their vehicles even more prestigious to own.
For example, any Rolls Royce is an impressive and borderline perfect car. But, is it good enough to justify spending more than a hundred thousand dollars? With a price that high, only highly successful people can afford one, meaning the brand becomes synonymous with wealth.
I just talked about 15 different reasons why luxury car brands are so expensive. I’m still a huge fan of this market, and I think most luxury options are worth the extra money. The only difference is that now we both understand why they’re more expensive.
If you have any other car questions, drop a comment below or check out the rest of my blog. I upload content a few times a week, so there’s always a new guide for you to read. Be sure to see what car products I highly recommend.