Recession, corruption investigations slowing sales only slightly
China's luxury car market, which
has been growing at a blistering pace as a rising upper middle class looks for
rolling status, looks like it is on track for 20 percent growth in 2013 despite
what happens to the rest of the auto segment, analysts say.
While the overall car market grew
by only 7 percent in 2012 as China's economic performance slowed, luxury cars -
a market largely owned by the Germans - grew 20 percent last year. According to
a new report by the McKinsey consulting firm, and titled Upward Mobility: The
Future of China's Premium Car Market, while passenger car sales have improved
at a 26 percent clip overall, luxury car sales have been averaging 36 percent
annual growth.
One shadow on the horizon could
well be the war on corruption that incoming Chinese leader Xi Jinping and Prime
Minister Li Keqiang have already begun waging. Twenty-seven top cadres have
already been relieved of duty on corruption charges. Nervous cadres at the
National People's Congress have asked that the leadership slow the pace of
reform lest it wreck the Communist Party. Economists have reported that
banquets have fallen drastically in number and that the sales of other luxury
goods have slowed.
McKinsey, in its report, said
that macroeconomic conditions have created "increasing concern in the auto
industry about the volatility of demand for premium cars in China and what that
means for continued market growth." In its survey, however, the consulting
firm said, " despite some uncertainty about the direction of the economy,
and shifting social attitudes about public displays of wealth, 80 to 85 percent
of Chinese consumers surveyed are confident in future growth and will continue
to buy premium cars.
As an indication of how lucrative
the market is, the average Chinese car buyer opts for a new model ever six to
eight years. The buyers of premium models - those just a cut below the serious
luxury models put out by Rolls-Royce, Bentley and the McLaren, Lamborghini and
Ferrari supercars—change every two to three years.
McKinsey & Co. estimates that
premium car sales in China will surpass US sales by 2020. In 2012, according to
the report, the Chinese bought 1.25 million premium vehicles, second only to
the Americans' 1.7 million. Sales are expected to three million by 2020,
equaling those of Western Europe, and surpassing the 2.3 million sales expected
in the US market, McKinsey says, with China possibly overtaking the US as the
largest premium car market as early as 2016.
How long the Big Three
Germans—Mercedes-Benz, BMW and Audi - can hold onto the luxury market is
debatable. A survey of Chinese respondents found that a majority of them expect
Chinese automakers to be producing their own premium cars within 10 years.
Nonetheless, other international
automakers want to swarm into what they perceive as a nearly limitless market.
Apparently heartened by the strong performance of its Buick marque in China,
General Motors is entering the market with its top-of-the line Cadillac. Nissan
wants to bring in its luxury Infiniti but is doing its best not to identify it
as a Japanese car. Japanese consumer products of all kinds haven't recovered
from dramatic drop-offs in sales as a result of xenophobia over the uninhabited
Senkaku/Daioyu Islands, which both China and Japan both claim as their own
In the wake of the confrontation
over the islets, Toyota's and Honda's sales in the first two months of 2013
fell13.3 percent and 4.1 percent respectively, while Nissan's fell 14.1
percent, although that was better than their expectation of a 20 percent fall.
And, while dealers report that the worst is over, there has been no return to
pre-boycott sales levels.
By contrast sales for Audi, which
sold more than 400,000 units in 2012, rose by 29 percent, apparently benefiting
from the fact that Audi was the first major carmaker into the Chinese market,
teaming with the state-owned First Auto Works in 1988 with an agreement to
share technology in an agreement under which 499 Audi 100s would be built. Part
of the reason for Audi's success is built on its Q5 SUV as wealthy buyers, as
they have in other countries, have increasingly turned to luxury SUVs instead
of sedans.
BMW sales also rose strongly, by
40 percent in 2012. However, Mercedes-Benz, elsewhere considered the world's
most prestigious premium carmaker - rose by only 4 percent, apparently because
its sales structure is fragmented into two distribution organizations, one run
by Mercedes itself affiliated with a local dealer for cars imported from
Germany and another for cars build locally with another state-owned company,
Beijing Automotive. While Audi and BMW outperformed the market, Mercedes-Benz's
sales growth has dropped out of the first tier.
The reasons for buying premium
cars are changing, McKinsey found. While the first generation bought cars for
status and the ability to show off, the new McKinsey survey found that while 30
percent cited "reflection of social status" and 27 percent cited
"self-indulgence," others said the car was in effect a ‘business
card' for credibility, others were attracted by sophisticated functions and
innovative designs, and the car as a "source of fun in life. More than 60
percent of respondents regarded buying a car as much a priority as buying an
apartment or paying for their children's educations.
The other major change, McKinsey
said, is that women are taking a more active role in buying cars, valuing
exterior styling, safety features, and comfort over the attributes favored by
their male counterparts, such as powertrain technology, socially recognized
premium brands, and bigger models.
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