Move over, rich guys. The kid bagging your groceries is now driving your wheels of fortune. It’s not just Mercedes with its hatchback (the only Benz to come with cloth upholstery). In a quest for younger drivers and higher sales, many other stately luxury-car makers are rolling out models priced under $30,000. Jaguar, known for selling cars with six-figure stickers, recently introduced the $29,950 X-Type to go up against low-priced offerings from BMW and Lexus. All the new models are making luxury’s low end the hottest spot in the U.S. auto market. Sales of “entry luxe” cars have soared 23 percent so far this year, while overall auto sales have fallen 4.3 percent. Budget-priced models now make up one third of the $63 billion luxury-car business and outpace sales of high-end SUVs. Coming in the next few years: tiny Beemers and Benzes that start at $20,000. Audi will roll out a small hatchback, while Volvo is designing a model based on Ford’s Focus economy car.

What’s driving the affordable-luxury trend? Catering to a clubby clientele just isn’t enough anymore. “You don’t make a business out of selling very exclusive cars in extraordinarily low numbers,” says Mike O’Driscoll, head of Jaguar’s U.S. operations, which expects the X-Type to nearly double annual sales to 75,000 cars. To puff up profits, luxury-car makers are putting their hood ornaments on some unusual models these days. Porsche will soon come out with an SUV, while Cadillac and Lincoln now sell pickups. But the real action is at the low end, where luxury brands are hoping to win over a new generation. For years BMW has done its best, luring young buyers with its $27,000 3 Series sports sedan and then pushing them up to the $50,000 5 Series and the $80,000 7 Series. Luxury-car makers aren’t the only ones who’ve decided to invite more customers to the party. Everyone from Ralph Lauren to Tiffany is doing it. “There’s been a tremendous democratization of luxury,” says O’Driscoll.

But are the crown jewels of the auto industry risking becoming cheap imitations of themselves? Strip away too much leather and wood, and suddenly you may be selling little more than a Taurus with a fancy hood ornament. “People do not want an ersatz version of the real thing,” warns brand consultant David Martin of Interbrand. The risk of diluting stellar names is even greater now that penny-pinching corporate parents are mixing and matching prestige and pedestrian brands. Chassis from Ford models are being used for Jaguars and Volvos, while Mercedeses are sharing parts with Chryslers. Even some luxury execs admit they are taking a gamble. “The flip side of success is the loss of exclusivity,” says Wolfgang Reitzle, a former BMW exec who now runs Ford’s luxury lines. “If you see your car on every street corner, then you lose exclusivity.”

And the low road can be a treacherous path. Just ask Cadillac, which began its long decline with the 1981 introduction of its Cimarron, a tarted-up Chevy that fooled no one. Already critics have dinged Mercedes and Jaguar for not living up to their gilded reputations. The New York Times labeled the Mercedes C230 “homely.” Automobile Magazine favored the lowly Hyundai XG 350 over the Baby Benz and warned Mercedes: “Sprinkling silver stars too liberally throughout the market will sap this brand’s prestige.” Jaguar’s X-Type has taken lumps for too closely resembling the European Ford family sedan from which it is derived. Jag and Mercedes execs cite plenty of positive reviews and accuse their critics of holding them to an unfair standard. “The press is very critical of Mercedes because we’re going in a direction no one has seen us go before,” says Paul Halata, Mercedes’s U.S. chief. “But our brand has phenomenal elasticity.”

There are signs, though, that these brands are stretching thin. Mercedes’s legendary quality slipped below Cadillac and Lincoln in a recent J.D. Power and Associates survey that measured long-term dependability. Halata admits Mercedes suffered “teething pains” as it expanded into SUVs and lower-priced models but says it’s fixing them. Jaguar stumbled when it tried to work a budget message into its moody advertising. The ads promised a car starting at $29,950, but Jaguar initially shipped its dealers fully loaded models priced above $40,000. The result: X-Type sales stalled as coveted young buyers suffered sticker shock. Now Jaguar is cranking out base models, while new ads tout a $349-a-month lease deal. That’s boosting X-Type sales, but some Jaguar owners are put off by the discount message. “Those ads make me worry that the other doctors will think I’ve gone cheap,” frets Dr. Peter Hulick, who paid $46,000 for his green X-Type.

BMW will test the lower limits of luxury soon. It’s developing a tiny 1 Series car that will arrive in the United States in two years with a starting price of about $20,000. “We build cars from $27,000 to $150,000,” says BMW’s U.S. chief, Tom Purves, “so I don’t believe it is a very big stretch to go down to $20,000.” BMW contends there’s a market for upscale gas sippers in this land of jumbo SUVs, particularly among tree-hugging Gen-Y kids. Not everyone agrees. “You can’t build luxury into a $20,000 vehicle,” says Lexus marketing VP Mike Wells. To appease nervous BMW dealers, the carmaker is flying several of them to Germany this summer to review 1 Series design concepts. “When do you get to the point where it isn’t a BMW anymore?” asks BMW dealer Frank Ursomarso. Dude, if you have to ask, maybe it isn’t luxury.