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Jun
2015

Luxury Cars May 2013

Luxury car sales are on the decline

According to statistics from the China Automotive Industry Association (CAIA) the Chinese luxury car market increased 4%, far below the passenger car market that increased by 13% during the first quarter of this year. However, when compared to Q1 2012, when sales increased by 20%, this year’s figures are a mere 5th of these.

The potential cause of the poor results could be due to:

  • The market has been approaching its saturation point over the last few years
  • The slowdown of the domestic economy
  • The government releasing several regulations preventing car abuse by officials and state owned enterprises
  • Central government announced that all the new purchases of official cars should follow the “double 18 rule: the price below 180K RMB, and engine capacity below 1.8L)”. Note: 20% of all Audi A6L variants sold in 2011 were purchased by the Chinese government
  • The Central Military Commission (CMC) implemented a new military license plate system on 1st May forbidding any vehicle that costs more than 450k RMB from having military license plates fitted. With these plates, drivers avoid driving fines, and are given preferential treatment.

International car brands are still optimistic about the Chinese market even though there is a slowdown in growth, the 2013 Shanghai Auto Show held last month proved this. In the show, of the 1,300 vehicles exhibited, there were 111 world debut’s, and 49 Asia debut’s. In addition, there were 69 concept cars and 91 new energy cars on display during the show.

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Naturally, rich Chinese consumers ordered dozens of luxury cars during the show, including those from Aston Martin, Maserati, Ferrari, Koenigsegg etc. The Bugatti Grand Sport Vitesse WRC and Lamborghini Aventador LP720-4 50th anniversary edition were reserved before the show started.

The slight slowdown in growth of the Chinese market didn’t change the expansion plans of luxury car brands. Following Jaguar Land Rover were Infiniti, Acura, Lexus, Volvo, Lincoln and Cadillac who all announced the start of domestic production soon.

SUV’s retained an important role in the show; Range Rover Sport, Jeep new Cherokee, Acura SUV-X, Eterniti, DS Wild Rubis and BENZ GLA concept gained tremendous attention from consumers. As mentioned in LIC previously, SUV’s have had a meteoric rise in China. On the one hand it’s seen as a good option as a second family car; and on the other hand, because the Chinese have begun to enter a time of car replacement, the SUV has become a preferred choice.

Luxury tax

Recent rumours are that a luxury consumption tax on imported luxury cars will be introduced, the most popular one being that all the cars with a price tags above 1.7 Million RMB (without VAT) will be eligible for an additional 20% luxury tax.

According to some insiders, the sales volume of luxury cars with a price tag over 1.7 Million RMB in China is less than 5000, so the rumoured tax will not affect much of the market, but perhaps it will affect consumer psychology and the luxury car market development.

In the long-term, luxury car brands may provide more entry-level models to the mass market. The Porsche Cayenne for example can be purchased for less than one million RMB which makes it a fatal attraction for Chinese consumers. Now Maserati has followed this example, and in the Auto Show the brand lunched its New Quattroporte V6 model at price of around 1.5 million RMB. The world debut of the Maserati Ghibli at only 800k for its entry level model was well received.

Of course, for the ultra-luxury cars, a luxury consumption tax is unlikely to affect the market; people who can afford these cars don’t care about the 20% additional cost. The more luxurious and extravagant the car is, the more wealthy people desire to buy it. Increasing the tax will undoubtedly increase the unique psychological attraction for the consumer: more expensive, more unique, greater reputation.

Benz

Benz will launch 20 new models before 2015, and 7 will be launched this year; 75 new 4S stores will be opened this year, 45% of which will be in tier 3 and 4 cities, making a total of 335 stores in China by the end of 2013.

BMW

In April 2013, BMW released its new plan for China; the main principle is to increase the proportion of domestic car production, and other targets are to expand the second-hand car business and vehicle finance business. BMW sold 320,000 vehicles in China last year, an increase of 40% over 2011, however they have set a 10% growth plan for 2013. 50 new 4S stores will be opened this year, the majority of which will be in tier 4 and 5 cities.

Audi

Audi plans to open one new dealership each week in 3rd and 4th tier cities in 2013. The brand plans to establish dealerships in more than half the cities that have over one million population in future.

Bentley

Having entered China in 2001, Bentley had opened 26 dealerships by the end of 2012, they had already opened 10 stores in tier 2 cities such as Shijiazhuang, Changchun, Jinan etc. and wealthy tier 3 cities such as Shaoxing, Foshan etc. in 2013. The current plan is to have 40 dealerships by the end of 2013.

Hongqi

At the 2012 Beijing Auto Show, the Hongqi L7 (estimated price: 6-8 Million RMB) attracted tremendous attention from the Chinese. 2013, was the debut of mass production version called the H7 and the leader’s special version the L9, showing signs of a revival of the domestic brand.

On 5th May, Beijing donated 20 Chinese-made Hongqi sedans to Fiji, which are worth about $USD 2.3 million. With the government support and domestic expectations, will Hongqi survive in the competitive high-end car market? We will keep you informed.

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