Hitting Road Bumps in Beijing, Shanghai, What’s Next for Luxury Car Makers?

on October 5 2011 | in Auto Trends | by | with No Comments

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China’s once soaring luxury car market is hitting its first major road bump.

Luxury car sales are slowing down rapidly in the world’s largest automobile market. With some cities imposing driving curbs – such as limiting the amount of license plates issued – to minimize pollution and congestion and the central bank restricting its loans, BMW, Daimler (which markets Mercedes-Benz), and Audi have been offering their automobiles at steep discounts.

“Luxury cars are cheaper, and there are vehicles readily available,” said He Guo Chang, a Mercedes shopper in Shanghai. Chinese buyers can choose from 471 models across 94 brands, a study by J.D. Power says. The biggest discounts are being offered in the biggest cities, like Beijing and Shanghai, where restrictions are the tightest.

According to cheshi, which tracks more than 3,000 car dealerships in China, BMW dealerships are slashing as much as 19 percent on a 3-series car. The C-Class Elegance from Mercedes can be found for as much as 20 percent off. And Audi’s A6L – China’s most popular premium sedan last year – sells for 16 percent below suggested retail price in Beijing’s Fengtai district.

“The market has slowed, but last year’s huge rise was unsustainable,” said Leon Tang, a 32-year-old executive general manager at BMW dealer Shanghai Baozen Auto Sales & Service Co. Mercedes-Benz sales in China and Hong Kong grew 3.2 percent last month, a far cry from the 41 percent increase the company experienced in the first 8 months. Despite the discouraging numbers, many luxury car makers expect to reach their sales targets this year.

So how can luxury carmakers preserve their growth momentum?

Bill Russo, a senior advisor at Booz, says luxury vehicle makers will need to expand into less developed cities to tap the next wave of demand, as wealth in those regions grow and more developed cities restrict driving. “Luxury brands concentrated in areas where they have historic strength, not in the areas that are growing the fastest,” Russo said. “If you look forward in time, you have to look to the lower-tier cities for growth.”

BMW believes it will achieve record sales this year in China, said Lu Yi, vice president of sales at its local unit. “It is predictable that the Chinese car market will keep growing at a comparatively lower rate,” Lu said. “BMW has maintained a strong and sustainable growth.”

Audi, too, is proceeding cautiously but optimistically. The company reports its sales in China and Hong Kong rose 26 percent in August, steady with the 29 percent rate for the first eight months.

Arnd Minne, a Beijing-based spokesman for Mercedes-Benz echoes representatives of other top carmakers. “Mercedes-Benz has maintained its strong growth momentum during the first eight months of 2011 through sales of 123,590 units, an increase of 41 percent,” Minne said. “For most of our key models, pricing has remained stable and consistent.”

[bloomberg]
photo credit: audi

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