Chinese students at the University of Iowa began coming into Carousel Motors in Iowa City about three years ago to get their Mercedes (DAI:GR) and Audi (NSU:GR) luxury cars serviced. Finally, general manager Pat Lind started asking if they’d ever considered his dealership when they made their original purchase. No, the students told him. Back in China, they’d been told to buy their wheels in Chicago before heading to college.
So Lind began sponsoring the university’s Chinese student association, which sends information to incoming students in China before they arrive in the U.S. Sales to Chinese students doubled and now make up about 5 percent of the vehicles sold at the dealership, located about two miles from campus. “We became an advertiser,” Lind says, “and got our face in front of them.”
The number of students from China enrolled in U.S. colleges and universities reached 235,597 during the past academic year, more than triple the 64,757 enrolled in 2002-03, according to the Institute of International Education. These students often come from families that are better off than the typical American college student’s, says Sid Krommenhoek, a founder of Zinch, a consulting firm owned by textbook rental company Chegg that works with prospective Chinese students. Shelling out $50,000 for a high-end car is viewed as an affordable status symbol compared with back home, where such cars can cost two to three times as much because of hefty import duties.
Photograph by Clayton Cotterell for Bloomberg Businessweek
Zinch surveyed 25,000 Chinese students last year and found that 62 percent said they could afford to spend at least $40,000 each year on a college education. “Most schools are recruiting [Chinese] students for whom the difference between a $20,000 and a $40,000 education is a rounding error,” Krommenhoek says. “This is a very attractive demographic for foreign brands.”
Chinese students in the U.S. purchased about $15.5 billion in new and used vehicles in 2012 and 2013 through October, according to Art Spinella, president of CNW Marketing Research. His figures, based on car sales, student and family visa data, and other factors, include Chinese students attending high school, undergraduate, and graduate institutions in the U.S. A comparable group of American students purchased $4.7 billion in vehicles, CNW estimates.
The interest in autos among Chinese students in the U.S. shouldn’t be surprising. Teeming demand on the mainland has boosted global automakers’ profits in recent years. While China’s austerity measures slowed luxury sales somewhat in 2013, deliveries there of Volkswagen’s (VOW:GR) Audi—for many years China’s No. 1 luxury nameplate—increased this year through September by 23 percent, to 366,038. Only 114,411 Audis were sold in the U.S. during the same period.
A little more than half the vehicles bought by Chinese students in the U.S. during the 22-month period CNW studied were new, with an average purchase price of $52,796; and 32 percent of buyers paid cash. Those buying used vehicles paid about $36,500, and 58 percent used cash. About 40 percent of their U.S. counterparts purchased new vehicles, with an average price of $19,472, CNW says. And fewer than 5 percent of those buyers paid cash.
Lind’s Chinese student customers almost always pay with cash. “Many times they’ll come in here,” he says. “They’ll pick out the car and say, ‘OK, I’ve got to call my parents and tell them how much to wire over. I’ve only got $20,000 in my account and I need $50,000, so they’ll wire the difference.’ ”
Some dealerships, such as Mercedes-Benz of Eugene, in Oregon, have hired Mandarin-speaking sales staff to deal with the rush of Chinese students craving luxe rides. Steve Shaheen, general manager of Okemos Auto Collection, a BMW (BMW:GR) and Mercedes dealer near Michigan State University in East Lansing, says he’s seen his sales to Chinese students rise to as much as 15 percent of his total business, from zero five years ago. Chris Perantoni, sales manager at Royal on the Eastside, an Audi and Volkswagen dealership near Indiana University at Bloomington, trumpeted in his advertising that the store had a salesman who spoke Mandarin and Cantonese—until the staffer’s visa expired and he had to leave. “Him being bilingual definitely helped,” says Perantoni, who estimates that as much as 10 percent of his annual sales are now to Chinese students. “We’d love to have him back.”
Ralph Parshall, general manager at the Mercedes dealership in Eugene, says an influx of Chinese students over the past two years at the University of Oregon has boosted his annual sales by as much as 8 percent. Parshall began sponsoring several Chinese student activities, including dance parties put on by a student group called Pretty in China. In November the group took over a nightclub in Eugene for Asian Night, a party that included a special VIP entrance where guests took pictures on a red carpet in front of a Mercedes logo backdrop. Pretty in China’s online videos show young people arriving at previous events in exotic sports cars such as an Audi R8 and a Mercedes SLS with gull-wing doors, and posing in front of a BMW.
Hao He, 22, an Oregon sophomore from Guangzhou who says he paid cash for his black BMW 335i, is part of a campus group called the International Student Auto Club. The group has about 30 members, mostly from China. One student has a Lamborghini, though most prefer BMWs, He says. While members throw barbecues and help new students navigate the car-buying process, their favorite thing to do is gather in parking lots with their rides. “We don’t show off—we just park someplace and talk to each other about how to modify your car,” He says.
Photograph by Clayton Cotterell for Bloomberg Businessweek
Oregon senior Calvin Yang, 24, another club member from Guangzhou, says many Chinese students arrive expecting to buy just basic transportation but soon learn they can afford much more. “After they know the price, they’re sure they want to buy a car,” he says. “I’ve seen some students—they’ve bought a car three days after they arrived in the U.S.”
Some can’t seem to stop buying. Iowa City’s Lind says one Chinese student recently came to him to purchase a Mercedes CLA, a sedan that begins at $29,900. The student then took a road trip to Chicago, where he traded the car in for an Acura RDX, which starts at $34,520, only to return to Lind’s dealership to swap that for another Mercedes, which he drove for 400 miles before switching it for a Lexus IS250, which begins at $35,950. “He finally said, ‘Oh, I just like trying different things,’ ” the dealer says. “We’re four cars behind as far as getting titles and licensing.”