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Jun
2015

The luxury SUV market

The availability of SUV’s in China is relatively new, yet their popularity has grown dramatically during this time, initially with the wealthy consumers, and most recently with the affluent class for whom the manufacturers have introduced a number of smaller entry-level models. The SUV as in many other places in the world is rarely used off road in China, or even comes close to rough terrain, with the exception of those driven by wealthy mine owners.

The China Association of Automobile Manufacturers estimates that in 2013, sedan and SUV’s will still become the main force of market growth. They predict that sedan’s will maintain a steady growth as they did in 2012 and forecasts that car sales volume will reach 11.55 million, a growth rate of 7.5%, whereas the SUV sales will grow at 23% or 2.46 million units.

Consumer demographics

Many of those buying a luxury SUV already have a car as might be expected, this number is approximately 40%. In recent years many people choose to replace their existing vehicle with an SUV, some part of this trend is purely related to the popularity of the SUV, and some can be apportioned to the increased leisure time that wealthy individuals have started to find, as business in China has slowed from its previous manic pace.

In the past year as a result of the introduction of small SUV’s, there are a lot of young people choosing one as their first car; they see them as appropriate for their status, practical and more powerful than a sedan. A further less obvious attraction is that as a new product category to China, the SUV satisfies the inner requirement of many to be seen as leading edge, a factor common to the entire luxury sector. The high driving position enhances vision, not to mention status for many, and it is reported that petite Chinese woman feel safer in such a vehicle.
Chinese consumers have increased leisure time compared to that a few years ago, and other than the national holidays they have been given paid leave, and are increasing their scope and interest in leisure activities that include driving trips with friends and family, and touring the country. All these and the practical driving values make the SUV the ideal tool. Culturally the Chinese do not like outdoor extreme sports, so it is unlikely that the SUV will become the rugged workhorse it was originally designed for.

Popular models

The first point of evaluation for a Chinese consumer considering a luxury SUV is typically the Internet, the following table shows the order of search preference for those models falling into the 1 Million RMB plus price bracket. All these models are imported.

  • Audi Q7: 821k – 2,578k
  • Porsche Cayenne: 902k – 2,119k
  • BMW X6: 1,055k – 2,190k
  • BMW X5: 500k -1,953k
  • Benz ML: 6,992k – 1,418k
  • Range Rover Sport: 850k – 1,841k

Sales figures

Sales volumes: 1,497,000 units in 2011 and 1,838,000 in 2012 an increase of 22.6%

 

SUV sales volume as a share of the total China market
Audi Q5: sold 90,157 units in 2012, an increase of 53.7%
Audi Q7: sold 21,360, an increase of 10% when compared to last year.

2011 Porsche in China sold 24,340 new vehicles, 55% of the total sales were Cayenne models. In 2012, total sales increased to 31,205 of which 53% were Cayenne’s.

In 2012, Land Rover the annual sales total was 65,896 units, an increase of 83% when compared to 2011, and the Range Rover Evoque delivered full-year sales of more than 21,300 units.

Local production verses importation

As one of the largest SUV markets in the world, China is a battleground for the auto brands, and we can expect to see competition intensify over the coming years. Luxury SUV’s are those in our view that cost more than 1 Million RMB, all of which are currently imported. The mid and low end models on the other hand are now in many cases domestically made, and this is where the mainstream manufacturers will compete in future.

Audi for example, started to produce the Q5 domestically in 2010, and has commenced production of the smaller Q3 from its new Foshan factory recently.

BMW began domestic production of the X1 last year, and with the completion of its second Tiexi factory last year, domestic X3 production is just around the corner.

In the second half of 2012, Daimler announced that they plan to build two M-Class and GL-Class luxury SUV production units in India, Thailand and Indonesia, to respond to the Chinese market supply shortage.

The recent agreement between Jaguar Land Rover and China’s Chery to build a JV plant that will open in 2014 will also mean that Range Rover Evoque and Land Rover Freelander 2 will be produced in China.

Not to miss out on this huge potential market and in particular the luxury SUV sector, in the spring of last year, we saw a number of the luxury car and supercar manufacturers announce their plans to produce SUV’s in 2014. These brands included Bentley, Maserati and Aston Martin.

The future outlook for luxury SUV’s

The future market for SUV’s in China looks encouraging. The increased domestic production of the smaller models will continue increase, as will sales of the models from brands selling luxury models. In addition, there is the we have the planned introduction of the super luxury SUV’s from 2014, which will undoubtedly have a knock on effect further down the line.

According to McKinsey, sales of SUVs are forecast to rise 13%, compounded annually from 2011 to 2020, exceeding the growth rate of all other segments; they expect annual SUV sales to triple in the next 10 years. Their opinion is that wealthy consumers are more likely to consider buying SUVs than the rest of the market, as both their driving and personal taste and lifestyle needs would be satisfied. By 2020, SUV’s will represent about 20% of the overall market, much lower than the 35% market share found in the United States in 2011.

The second-generation rich car owner

According to a survey of second generation wealthy carried out in 2011, the SUV was a very popular choice of vehicle as it defined status and style, and at that time, availability of vehicles in this category was limited. Having said this, our own experience and involvement in supercar events would indicate that brands such as Aston Martin, Maserati, Lamborghini, Ferrari, and Bentley have a very strong, and high volume following amongst this group. Whether this will be a benefit to these brands should they introduce super SUV’s in the next few years, remains to be seen.

Only just old enough to drive

Chinese second-generation luxury cars owners are younger than their European or American counterparts.

According to GuanZhen the Marketing Director of the Bentley Beijing dealership, many Bentley Continental series customers are under the age of 30, some as young as 17 or 18, and nearly 40% of all Bentley owners are 80s “rich second generation”.

More than 50% of Lamborghini owners are 20 -30 years old, and over 90% of them are male according to the Sales Director in Beijing.

More than 60% of Ferrari owners in China are under 40, and over 25% are under 30.

Supercar clubs

Supercar clubs are popular among second-generation Chinese. Clubs often have their own clubhouse or base at which their members meet, and throughout the year there are track days held or supercar weekends during which 200 or more cars will come together to compete in time trials on the track. Some clubs are run by a group of members, and others have dedicated management teams. The largest club based in Beijing claims to have about 700 members, and the typical minimum entry level in terms of a car is the Porsche 911, above which will be Ferrari’s, Lamborghini’s, Bentley’s, Aston Martin’s and in some cases Bugatti Veyron’s or a Pagani Zonda.

Some of the top supercar clubs in China are:

  • SCC (Beijing)
  • FJSCC (Fujian)
  • SSCC (Shanghai)
  • Route 19 Club (Chengdu, Sichuan)
  • CQSCC (Chongqing)
  • Beijing FFF club
  • Zhejiang Hangzhou FDS club
  • YNSCC (Yunnan)
  • M CLUB (BMW)
  • AMG Club China(Beijing)

Anecdotal stories

As is common, there are many anecdotal stories about the second-generation luxury car consumers.

A small 90s boy purchased an X6M for more than 2 million RMB.
He has a dedicated driver and a bodyguard, and calls the sales consultant who born in 1985 ‘sister’ which is a term of affection. Because there were scratches on the bonnet of the car, he just bought a new X5M instead of repairing the old X6M.

 

To reward their child’s achievement after he found a job, his father, mother, uncle and most of his family went together to a BMW 4S store and purchased him an M3.


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