Business / Industries

Allure of luxury cars fading

By Wang Chao (China Daily) Updated: 2012-11-30 09:51

Most of the brands, however, admit that they are lucky that China is a major market for them as the nation has been relatively immune to the effects of the global financial crisis.

Sergio Marchionne, CEO of Fiat SpA, says China is the second largest premium market in the world now and will zoom past the US to the top slot in 2016.

Foreign brands that used to capitalize on medium-segment vehicles are trying to grasp a piece of the cake as well, as the profit margin for a premium model is much higher than a budget car.

Joe Hinrichs, group vice-president and president of Asia-Pacific and Africa, Ford Motor Co, says the company will introduce its high-end Lincoln model in the Chinese market by 2014.

"We are witnessing a strong growth in SUV sales, which was not anticipated before," he says. "In the first-tier cities, we already see various restrictions on auto purchases, so the future growth will be from the second and third-tier cities."

At the same time, Chinese customers are getting fragmented among mainstream luxury cars like Audi, BMW and Mercedes-Benz, while youngsters are fueling demand for trendy, cool sports cars.

Sales of super luxury cars like Porsche, Ferrari, and Rolls Royce rose by 60 percent last year.

Another significant trend in the market has been the rising sales of SUVs. In the past few years, the market share of SUVs has grown from 5 percent to 13 percent.

Guillaume Saint, senior director of TNS Automotive China, says the rising demand for SUVs offers some insights into the minds of Chinese customers.

Saint believes that besides having plenty of room and comfort, the SUV also is a success symbol in China. He cites figures from TNS that there are more than 500 auto models in China and more than 100 are SUVs.

"In Europe, the appearance and the function are equally important, but in China, the appearance is more important as it gives the owner 'face'."

Auto industry experts also feel that it could precisely be the reason why Mercedes-Benz introduced its GLK model and Audi its Q3 range in China.

A recent report from Roland Berger Strategy Consultants shows that Chinese luxury consumers are expected to account for 40 percent of the new luxury market globally between 2010 and 2015. "It is an opportunity that few can afford to miss," the report says.

It also indicates that although most of the luxury companies have opened stores in China's first and second-tier cities, buyers from third and fourth-tier cities will account for nearly 40 percent of total sales, and this proportion is expected to further increase in the future.

Affluent Chinese consumers are so important to Western automakers that they are tailoring models for customer preferences.

Dan Akerson, CEO of GM, says that he hopes the sales volume of Cadillac in China will reach the levels in the US market by 2016.

The company is thinking of revising the design of its existing car model as research from the company shows that Chinese consumers feel the model is too bold and edgy.

Fernando D'Ornellas Silva, manager director of Berge Group, a major Spanish auto trade group, says companies should figure out the right strategy when introducing luxury brands in China.

"A company has to think about the profit margin. If a new foreign auto company wants to enter China, I would suggest that they start with the higher-end market, particularly SUVs, as they offer higher profit margins.

"If a company only considers the sales volume but not the profit margin, it can prove dangerous for survival in the long run," he says.

Xing Wenjun, honorary editor-in-chief of China Automotive Review, says that if companies start with budget cars, they will find it hard to upgrade their product lines and break away from the "cheap" stereotype.

On the contrary, if they start with a high-end model, it will be easier for them to introduce lower-end brands later.

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