Luxury-Auto Makers in China Target Buyers With Smaller Cars
Daimler, BMW , Audi among companies producing smaller high-end vehicles locally
Chinese car buyers usually equate luxury rides with big cars, but as the nation’s economy slows, growth in demand for such vehicles has declined significantly. Last year, the broader market for high-end cars in China grew around 22%, down from 43% in 2011, according to consultancy IHS Automotive, which expects growth for the broader luxury segment to decline to 14% this year.
To sustain growth, high-end auto makers are turning to locally produced smaller vehicles such as the Audi A3, BMW X1 and Land Rover Evoque.
Daimler started production Wednesday on its GLA compact sport-utility vehicle at a new plant just outside Beijing dedicated to producing a range of such small luxury vehicles.
Hubertus Troska, the member of Daimler’s Board of Management responsible for China, said the German auto maker found consumer reaction to the imported GLA in recent months had been “phenomenal.” He said he expected China-made versions of the SUV to contribute significantly to Mercedes-Benz’s future sales growth.
“Now we’re getting serious,” he told reporters at an event to mark the production of the first China-made model.
Daimler said Wednesday that first-quarter sales of its Mercedes-Benz cars in China rose nearly 17% to 78,183 cars, outpacing growth in Europe and the U.S., which posted growth of 16% and 7.6%, respectively.
For example, prices of Audi AG’s A3 Sportback start around 185,000 yuan (about $30,000), whereas the next-size-up A4L sells for around 273,000 yuan, according to prices listed on Audi’s Chinese website.
Many buyers of smaller luxury cars are first-time buyers, and auto makers are hoping that by luring them early, they will become long-term loyal customers.
Local production also fits with China’s policy goals of promoting the country’s auto industry.
Producing the smaller luxury cars in China means Audi,BMW AG and Daimler can avoid import duties of 25%, allowing them to sell the cars more cheaply. Almost all imported cars also face a value-added tax of 17%.
BMW began producing its premium compact X1 SUV in China in 2012. The company is also planning to add a locally produced smaller luxury car in the future but it declined to provide specifics.
Last year, more than 1.8 million high-end cars were sold in China, up from 1.5 million the previous year, according to data from consultancy Automotive Foresight.
Sales of premium compact cars-including imported vehicles-reached 318,000 cars in 2014, up 60% from the previous year, according to IHS Automotive analyst Lin Huaibin, who forecasts the segment will grow 22% this year.
With more car companies producing in China, locally made cars are expected to account for an ever increasing proportion. IHS data shows around 70% of the cars in the segment are currently made in China, but expects that to increase to 83% by the end of this decade.
For Audi, sales of such cars in the first two months of this year accounted for 23% of its China sales, compared with 14% in the year-earlier period.
Audi began producing smaller luxury cars in northern China in April 2013 with its compact SUV Audi Q3. Later that year, it added production of the A3 Sportback in the southern city of Foshan, followed by the A3 Sedan in 2014.
In the first two months of this year, Audi sold close to 20,000 vehicles in this segment, up 88% from the year-earlier period, according to the company.
Jochen Siebert, managing director of consulting firm JSC Automotive, said he doesn’t see a boom in compact luxury vehicles.
“The time is not right,” he said, adding that the middle-income earners who would buy such cars are particularly susceptible to economic slowing and a cooling of China’s property market. “It could take a decade before the small luxury car market takes off, even in the best case scenario,” he said.
Daimler’s Mr. Troska said that at a 7% rate of annual gross domestic product growth—around China’s target for this year—he didn’t see an overall economic downturn, adding that he was confident that sales of smaller luxury Mercedes-Benz cars would grow.
“Locally built enables us to be more competitive to price the vehicles and position them properly in order to grow,” he said.