Daimler AG’s Mercedes-Benz joined the ranks of high-end car brands manufacturing small luxury vehicles in China, seeking new avenues for growth as demand for ritzy rides ebbs.
Chinese car buyers usually equate luxury rides with big cars, but as the nation’s economy slows, growth in demand for larger luxury vehicles has declined significantly. Last year, the broader market for high-end cars in China grew around 22%, down from 43% in 2011, according to consultancy IHS Automotive, which expects growth for the broader luxury segment to decline to 14% this year.
To sustain growth, high-end auto makers are turning to locally produced smaller vehicles such as the Audi A3, BMW X1 and Land Rover Evoque.
Many buyers of smaller luxury cars are first-time buyers, and auto makers are hoping that by luring them early, they will become long-term loyal customers.
Prices of Audi AG’s A3 Sportback start around 185,000 yuan (about $30,000), whereas the next-size-up A4L sells for around 273,000 yuan, according to prices listed on Audi’s Chinese website.
Local production also fits with China’s policy goals of promoting the country’s auto industry.
Daimler started production Wednesday on its GLA compact sport-utility vehicle at a new plant just outside Beijing dedicated to producing a range of such small luxury vehicles.
Hubertus Troska, the member of Daimler’s Board of Management responsible for China, said he expected China-made versions of the GLA to contribute significantly to Mercedes-Benz’s future sales growth.
Daimler said Wednesday that first-quarter sales of its Mercedes-Benz cars in China rose nearly 17% to 78,183 cars, outpacing growth in Europe and the U.S., which posted growth of 16% and 7.6%, respectively.
Producing the smaller luxury cars in China means Audi, BMW AG and Daimler can avoid import duties of 25%, allowing them to sell the cars more cheaply. Almost all imported cars also face a value-added tax of 17%.
Read more at The Wall Street Journal.