Battleground China: Seven Luxury Brands Aiming For the Chinese Consumer

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If the past decade has taught us anything its that the Chinese luxury consumer has cash to burn and are willing to burn it in big ways, especially on big ticket items like automobiles. Chinese month to month salaries might remain relatively low in comparison to mature markets in the West but they have a seemingly bigger percentage of disposable income that they are willing to save and eventually splash out on.

The current luxury auto market is arguably a two way race between Audi and BMW, the former currently leading the latter but the latter catching up fast and still having many tricks up its sleeves. Audi owes its healthy China sales to a handsome head start back in the early 90′s where it pushed the Audi 100 and 200 into government hands, from that point on Audi became the semi official car of China’s leaders at all levels; from national to village leaders, Audi’s were rolling the roads. Later self made business men that had ‘jumped into the sea’ (shunned government jobs and set up their own business) took to Audi A6′s in droves, and then regular office working Joe’s (or Chen’s) lusted after the latest Audi A4L.

BMW arrived late, they signed up with Shenyang based partner Brilliance  but didn’t bring anything substantial to the Chinese market until late last year when the stretched 3-Series and X1 SUV was introduced into the China – suddenly sales raced ahead.

Mercedes are active in China, their partnership with Beijing Auto sees them produce the E and C-Class as well as the GLK, but it seems they have an over reliance on large displacement engines which are more popular in the USA market. China has embraced the turbo in recent years and Mercedes have been caught out, 1.8T and 2.0T variations are the big sellers over at BMW and Audi. Mercedes is going to have pull a large rabbit out of a small hat if they are to catch up any time soon.

Seven auto brands are looking to upset the Audi-BMW domination of the market with the introduction of their own luxury brands into the Chinese market.

Volvo China are planning to bring 2 factories to the Chinese market (as well as a Shanghai production plant) where they will produce 300,000 vehicles per year, namely the refreshed XC60 and also the new S60L (stretched, again). The first Chengdu factory is currently online and will begin producing the S60L in August with an annual capacity of 125,000 vehicles. Chinese media outlets have already visited the facility and have come away impressed. Future products for Volvo also include a compact MPV and three other as of yet unknown vehicles.

Chang’an-DS are a brand that is often forgot about and should not be underestimated. The JV deal was inked in 2011 with 4 billion RMB being injected into the new 50:50 joint venture that will eventually see the DS range (DS5, DS4, DS3) being produced domestically in the Chinese market in Shenzhen. In the first phase the new factory will produce 200,000 vehicles per year and then increase to 250,000 with the DS5 seeing Chinese production later this year, possibly in September.

In March 2012 Chery announced it had signed a JV deal with Jaguar Land Rover where the two would create a 50:50 JV to produce JLR vehicles in the Chinese market as well as establishing a joint R&D center and sales company. In the first phase only 130,000 vehicles will be produced that will be ramped up to 250,00 vehicles in the second phase. On the product side, the Evoque along with four other models will be produced in the Chinese market, including a new BMW 3-Series fighting vehicle.

Dongfeng and Nissan announced earlier this year that the two had reached an agreement regarding the production of Infiniti vehicles in the Chinese market, the new deal will see Infiniti production mixed in with Nissan production with a capacity of 250,000 vehicles being handed over to the Infinity brand in Xiang Yang City, Hubei province.

Shanghai GM are ramping up the Cadillac brand with a new factory in Shanghai where it plans to produce 160,000 vehicles per year. Work on the factory began last month and will give future models such as the ATS and CTS a new home in China. The recently launched XTS is currently produced on the Chevrolet Malibu product line.

Much like Dongfeng-Nissan’s arrangement, Guangzhou and Honda are planning to bring the Acura brand to China via their current set up. Production numbers haven’t been announced however it is thought that one of their first cars will be the Concept SUV-X that was aired at the Shanghai Auto Show in April this year.

In total, the above production capacity will likely bring an an extra 1.25 million vehicles to the Chinese market over the next few years. The current luxury market is a savage one with dealers making unhealthy cuts to their model range. An Audi A1 for example has the manufacturers price set at 224,800RMB but after dealer incentives this drops to 179,600RMB. Audi A4L pricing has dropped from 309,800RMB to a more affordable 244,800RMB and the Range Rover Evoque has dropped from 628,800RMB to 536,000RMB. Chinese media are stating that luxury brands are having an ever increasing stock problem which is driving price cuts and thus eating into profits – so is the Chinese market ready for seven new luxury auto brands?

About the author  ⁄ Ash

Ash came to China at 18 and never looked back, a decade later he is still here. After a 4 year stint in a Chinese University where he gained a double BA in Chinese and International Trade he worked for a myriad of different companies in the Chinese Auto industry before heading back to school to get an MBA with a focus in marketing.

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