Smooth Drive For Luxury Carmakers In China

Demand Continues To Grow In First- And Second-Tier Cities, As More Individuals Purchase First Automobile

China surpassed the United States as the world's biggest auto market for the first half of 2009 after June sales soared 36.5 percent from a year earlier (© Washington Post)

China surpassed the United States as the world's biggest auto market for the first half of 2009 after June sales soared 36.5 percent from a year earlier (© Washington Post)

Luxury automakers have been enthusiastic about the potential of the Chinese market for years, as the middle class began its rapid growth and more middle class individuals began to think about purchasing their first cars while wealthier individuals started “trading up” or buying their second or third vehicle. In recent months, as demand for higher-end automobiles shrank in developed markets, automakers have increasingly relied upon growth in the Chinese mainland to tide them over until higher profits started to show again in other areas. As growth there continues to lag, the Chinese market is increasingly looking like the true engine of sales for the short- to medium-term. Sensing this, the shift in automakers’ collective consciousness has turned distinctly eastward.

The Chinese market was, until recently, a blank slate for luxury carmakers. Until well into the 1990s, personal automobiles were still the domain of wealthy or powerful individuals, as China’s middle class was negligible in size. Through the post-WTO years, however, automobile segments from budget to luxury have seen strong growth, particularly in urban centers, where cars are both a luxury (as most megacities have relatively good, albeit crowded, public transportation) and a status symbol. Today, China Daily features an article about how steady growth of car ownership — especially higher-end cars — should buoy most luxury automakers for the time being, granted they retool their marketing and their product offerings for the mainland market:

German luxury car brands, Mercedes, Audi and BMW, posted strong sales during the period in China even though their premium offerings could not benefit from the government’s industry stimulus measures, which are basically aimed at smaller cars.

Their diversified product strategies, which offered more models for Chinese consumers, have also proven to be quite successful.

Mercedes-Benz, which led growth in the luxury segment on the Chinese mainland, continued to show impressive numbers in June, delivering more than 5,100 vehicles, a year-on-year increase of 52 percent.

It concluded the first half by delivering nearly 27,000 vehicles, a record year-on-year growth of 50 percent.

“Our success in the first half of the year was driven by a combination of factors, including China’s encouraging macroeconomic environment, our comprehensive product strategy and the approach to achieve highest customer satisfaction,” said Bjoern Hauber, general manager of sales and marketing at Mercedes-Benz China Ltd.

Volkswagen’s premium brand Audi said its sales in China, its biggest overseas market, increased by 11 percent from a year earlier to a record 66,866 vehicles in the first half of this year, with June sales rising 28 percent to 13,265 units, also an all-time high for that month.

Clearly, German cars have done well in China, where they enjoy a reputation for status as well as quality. Without many of the stigma that often plague luxury Japanese cars, European carmakers have done exceedingly well in this, and many other Asian, markets. As Audi’s deputy manager for the China region notes, this owes much to a successful localization strategy (quite possibly the “special sauce” for any luxury retailer):

“The robust sales show that we have devised the right product strategy for the Chinese market, which is matched to the tastes of the Chinese consumers,” said Zhang Xiaojun, deputy managing director of Audi China’s sales division.

According to Zhang, the sales were driven by a 26 percent growth in deliveries of Audi A4L, which featured a longer wheelbase tailored for the Chinese market, based on Audi’s popular mid-size saloon car.

The world’s biggest premium carmaker, BMW AG, said its sales in China surged by 44 percent over last year in June, to 8,506 units, while its global sales fell 12.7 percent.

In the first half, BMW delivered 37,627 luxury cars in total in China, up 24 percent year-on-year. The growing demand for the BMW X5 and X6 SUV models fueled the sales increase, the company said.

“Almost all luxury passenger carmakers realize the importance of product diversification. More luxury cars with smaller displacement and less fuel consumption have been introduced into the China market, including our B-Class, GLK-Class and Smart,” said Mercedes’ Hauber.

“All the luxury sedan producers, including Audi, have reinforced their product lineup in the China market, especially with products catering to Chinese consumers,” said Zhang of Audi.

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