Luxury brands eye China, but some see trouble ahead

BEIJING, Apr 24: Global luxury auto brands are piling in to tap China’s seemingly endless appetite for Audis and BMWs but, amid the ambitious sales forecasts, some signs point to trouble ahead for sleek high-priced vehicles.

Upscale brands from General Motor’s Cadillac to German brands such BMW and Mercedes-Benz, are trying to make up for less robust growth in the United States and sagging sales in Europe and grow – or survive in some cases – as luxury brands.

Optimism abounds at the Beijing auto show, which opened in the Chinese capital on Monday.

‘Successful global automotive companies must have a luxury brand that competes around the world and wins around the world and in China,’ said GM CEO Dan Akerson.

Toyota Motor Corp. Said it was trying to pump more vigour into its Lexus luxury brand. It unveiled a ‘more China-focused’ entry luxury sedan called the ES250, which had been designed to be more fuel-efficient with a smaller engine than its comparable ES350 model.

The car’s rear seat also has been designed bigger and plusher to cater to the specific tastes of Chinese consumers. Lexus executives said the brand was aiming to boost the number of its retail stores to 100 from the current 86 this year.

General Motors expects Cadillac sales in China to match U.S. Levels by 2015 or 2016, while BMW expects sales growth in China to climb by a double-digit percentage in 2012.

GM’s Akerson told reporters on Monday that the company would expand its dealer network in China to 3,500 stores by the end of this year from 2,900 now. He added that Cadillac sales rose 73 percent in China last year.

Still, high-flying sales growth rates in the premium segment have slowed markedly as the overall market lost momentum since last year. Daimler AG’s chief executive Dieter Zetsche said China’s premium car market should grow 15-20 percent this year. That represented a significant slowdown from 2011 when luxury sales grew nearly 40 percent to 959,980 vehicles, according to LMC Automotive.


Beijing-based CLSA Ltd analyst Scott Laprise, who downgraded China’s luxury auto sector last August, remains pessimistic about the segment in China and warns that some premium brands might have to resort to sales incentives to sustain sales – a move that would eat into the brands’ profitability.

‘My argument is pretty simple, as the total market slowed all year last year,’ Laprise said. ‘It was rich people slow, too. That’s it. Rich people just take longer (to feel the impact), but when the regular auto market falls eventually the rich market falls. It was a matter of time.’ Global luxury brand executives, however, are hoping the stretch of slower sales growth is short-lived.

Auto dealer group Zhongsheng Group Holdings Ltd, believes China’s luxury vehicle segment has room for faster growth partly thanks to a relatively low penetration of high-end brands in the country, Zhongsheng chairman Huang Yi told Reuters in an interview in New York last week.

Luxury car sales represented just 7.5 percent of overall sales in China last year, compared to nearly 12 percent in the United States, according to data compiled by the company.

When it comes to brand image in China, some industry players say European luxury marques have a lead over U.S. rivals.

Jim Press, CEO of dealer group Yanjun Auto, which owns BMW, Jaguar Land Rover, Volvo and Porsche dealerships in China, told Reuters on Tuesday that German brands remained ‘synonymous’ with luxury in China, and that others needed to design products with the Chinese market in mind.

Ford Asia chief Joe Hinrichs acknowledged that the likes of Audi and BMW had a headstart in the luxury market, but said rivals could compete with the right product and did not dismiss the idea of taking the Lincoln brand to China at some stage.

‘There’s plenty of Tiffany stores running around this place,’ he told Reuters last week. ‘It all comes back to the product and what you offer. Clearly, there’s some image associated with some of the German luxury manufacturers, but I think the best product always wins ultimately.’ (agencies)