If there was ever a time to buy a luxury car in China, its NOW! Escalating price competition amongst high end cars, coupled with China’s slowing economy is pushing margins of luxury car retailers down. Mercedes dealers are offering record markdowns of 25 percent on high-end models such as the S300 sedan, BMW AG (BMW)’s 7-series and Audi AG (NSU)’s A8Ls are selling for 20 percent below sticker prices, waiting lists have vanished and salesmen are dangling perks ranging from free iPhones to Hermes-bag coupons.
At the same time that China raised petrol and diesel costs by 6.5-7 percent on cue with global oil prices, and India’s Tata Motors marquee brands Jaguar and Land Rover decided to set up plants in China, the domestic market for luxury cars is crashing. The discounts, which began late last year with entry-level models, are spreading to the priciest high-end sedans as the world’s second-largest economy slows and China’s rich find an increasing abundance of vehicles to choose from.
“This year’s luxury-car discounting is the most I’ve ever seen,” said Scott Laprise, automotive analyst at CLSA Asia Pacific, who has been based in Beijing for more than five years. “China’s luxury car price premium is eroding.”
Growth in premium-light vehicle sales in the country, the world’s second-largest luxury-auto market, will slow to 24 percent this year after jumping 34 percent in 2011, according to Christoph Stuermer, a Frankfurt-based analyst at IHS Automotive.
This might just be a precursor for times to come in China. Inflation having recently peaked, the RMB appreciating and the economy cooling, will all have an effect on the luxury goods China will buy. Consumers who have until now spent more than half their salaries on purchasing status symbols like a Hermes scarf or an LV bag are beginning to think twice. The price sensitive consumer who has until now bought products on her pride of vanity is now concentrating on value. With prices rising, its quality the Chinese consumer is now after rather than sheer quantity.
Marketers on their part are falling over backwards to keep the Chinese consumer enticed, after investing billions in China, its hard to let go of a billion plus pockets.
Audi, BMW and Mercedes accounted for more than 70 percent of luxury-car sales in China, with Audi having the largest share at more than 30 percent, according to Morgan Stanley. (MS) Sanford C. Bernstein estimates China generated about 30 percent of Audi’s earnings in 2010, and accounted for almost half of Munich-based BMW’s last year.
The German car makers aren’t the only ones battling for China’s rich. General Motors Co. (GM), the biggest foreign automaker in China, plans to increase deliveries of its Cadillac and sport-utility vehicle lineup in the country as part of plans to double sales to 5 million by 2015.