China’s
stock market crash this week brought a jolting end to an uncomfortable summer for most of the world’s carmakers, who in past years had enjoyed a smooth ride in the industry’s most profitable market.
For the luxury marques, though, the pain had begun a while back.
A crackdown on ostentatious consumption had threatened to depress sales for the likes of Bentley and Rolls-Royce, ever since Chinese president Xi Jinping launched his
anti-corruption campaign in 2013.
This year, the impact has started to show. “Everyone’s really hurting,” says one executive at a luxury carmaker.
A combination of a slowing economy, restrictions on registration plates in larger cities to ease congestion, and increasing consumer appetite for domestic brands — all against the backdrop of the anti-corruption drive — have created a difficult environment for western manufacturers.
“All of these factors have a more direct correlation to sales than a volatile stock market,” says Bill Russo, a Shanghai-based consultant.
Even so, the sudden deceleration in Chinese car sales came as a surprise to some — not least when sales went into reverse in recent months. In July,
car sales fell for a second consecutive month, by 6.6 per cent, according to the China Association of Automobile Manufacturers.
Some analysts believe that the scale of the decline is such that multinational manufacturers such as
Volkswagen and
BMW — respectively the parent companies of Bentley and Rolls-Royce — will be forced to warn on profits in the coming weeks.
“Please keep in mind that we still have some drama ahead of us,” says Max Warburton, an analyst at Bernstein Research.
It amounts to a startling turn in fortunes for the car industry.
Between 2010 and 2014, premium and ultra-premium car sales grew by 50 per cent, as brands such as Audi, BMW, Porsche and Land Rover almost doubled their volumes in the country, according to data from IHS Automotive.
But registrations of luxury and ultra-luxury vehicles were down almost 10 per cent year-on-year in the first six months of 2015, based on figures from Bernstein Research.
This has taken a heavy toll on exports of British-made models. Bentley, which counts China as its second-biggest market, reported worldwide first-half sales down almost 12 per cent to 4,600 units. It was a similar story at Rolls-Royce, for which global deliveries fell 10 per cent to about 2,000 cars in the first half. Neither manufacturer breaks out six-month sales by country, but domestic peer Jaguar Land Rover offered a window to the state of the world’s largest car market: sales in China were down 27 per cent in the first half.
Not all luxury car brands have suffered such declines.
Porsche, maker of the Cayenne sport utility vehicle, reported sales up 48 per cent in the first half of the year.
But volumes to not tell the full story. China’s economic headwinds have already created what analysts describe as a “hyper-competitive” market. Porsche has admitted that dealers, independent of the company, have been cutting the price of its Panamera sports car by as much as 20 per cent. Chinese pricing website Bitauto also carries examples of Bentley Flying Spurs and Rolls-Royce Wraiths discounted by a similar percentage.
To put that in context, in the past, western luxury cars typically sold at a premium to their list prices in China.
For some companies, this turnround is already having an effect. China accounts for more than 60 per cent of JLR’s earnings before interest, tax, depreciation and amortisation, according to Bernstein — and the country’s slowdown has caused
net income to almost halve at parent company
Tata Motors. Similarly, Bentley’s operating profit fell from €95m to €54m in the first half.
Both companies, however — having ridden the tide of rising wealth in China for several years — are outwardly calm.
