German luxury auto makers are speeding up plans to offer a wider selection of small cars and sport-utility vehicles in China, hoping to lure Chinese consumers unable to afford a larger luxury car, or affluent buyers who want a less-expensive second car.
Small luxury cars are still an oxymoron to many wealthy Chinese, but industry executives say the risks—including lower profit margins—are worth it because of the growth expected in compact, premium-brand vehicles.
Producing smaller made-in-China luxury cars in China means Audi, BMW and Daimler can avoid import duties of 25%, allowing them to sell the cars more cheaply. Almost all imported cars also are subject to a value added tax of 17%. Local production also fits with China’s policy goals of promoting the country’s auto industry.
Audi has moved fast to get small in China. It plans to start production of its compact A3 sedan later this year in the southern city of Foshan. In April, Audi launched the Q3, a China-made compact SUV, that the company said has boosted its first half sales.
Its push to get small “is based on our analysis that this will be one leading growth segment in the luxury market in China in the future,” said Dietmar Voggenreiter, Audi China’s president.
Audi estimates sales of luxury compact vehicles in China rose by 29% during the first half of this year, significantly higher than the 11% overall growth for the luxury car market. Audi sales in China during the same period grew 18%.
In 2012, compact luxury car sales in China totaled 136,000. By 2015, that number could reach 400,000 cars, or about 20% of the total Chinese luxury market, said Lin Huaibin manager, China vehicle sales forecasts at researcher IHS Inc…
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