Luxury Cars in China: Pedal to the Metal

Newly affluent Chinese are driving demand for top-end, high-performance foreign models, which will be out in force at the Shanghai Auto Show

by Brian Bremner

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Flaunting it is in—at least when it comes to China's blisteringly fast luxury car market. And that's welcome news to the high and mighty of the automotive world as they head to China for the 2007 Shanghai Auto Show, which opens to the public Apr. 22. China has stunned the world again by reporting a better-than-expected first-quarter gross domestic product gain of 11.1%. So, it's appropriate that this year's show will appeal to the most demanding and status-conscious of Chinese car buyers.

The world's second-biggest auto market, now growing at about a 15% clip, is about to see the arrival of a caravan of new luxury nameplates. (Expensive, high-performance cars is the fastest growing segment in the Chinese car industry.) In early April, DaimlerChrysler's (DCX) Mercedes-Benz unit started selling its high-performance AMG lineup on the mainland. These monsters aren't cheap. The S65 AMG is a high-octane production extension from the Mercedes S-Class lineup and costs about $385,000 in China.

For Chinese consumers interested a muscular V-8 engine and off-road capabilities in a luxury model, there is the Mercedes-Benz G 55 AMG ($245,000) and the ML 63 AMG, a luxury SUV that starts at about $220,000. China is already the No. 2 market for Mercedes best-selling S-Class. And Ulrich Walker, DaimlerChrysler's chairman and chief executive officer of Northeast Asia, thinks the overall demand for luxury vehicles could double from about 150,000 units now by 2010 or so. Other analysts are even more bullish than that.

Filling a Need

Meanwhile, in July, Nissan will spearhead the launch of the Infiniti luxury brand in China with the introduction of the Infiniti G35 sedan. As part of the rollout, the Japanese automaker plans to open up to 10 Infiniti dealerships in China by the end of the year, starting with showrooms in Shanghai, Beijing, and Shenzhen.

The logic behind these moves and similar expansion efforts by prestige car brands such as Audi, Bentley, Ferrari, Lexus, Cadillac, and Rolls-Royce is simple enough to understand. China still may be a developing country, but the market for affluent car buffs in booming coastal markets such as Beijing, Shanghai, and Shenzhen has grown just too big to ignore.

Daimler's Walker points out that he's especially encouraged by the fact that so many Chinese Mercedes customers are actually in their 40s, considerably younger buyers than the typical 50-plus consumer back in Europe and the U.S. They also have a tendency to pay for their purchases in cold, hard cash—though Daimler has started to develop some financing programs.

Foreign Snob Appeal

He and other car executives point out a growing sophistication of Chinese car buyers that rivals similar big spenders in other markets. The mainland's budding well-heeled class of buyer is similar to Infiniti customers in an emerging market such as Russia or a developed one such as the U.S., figures Simon Sproule, the vice-president of global communications and investor relations for Nissan. "They tend to be people who are more design-driven."

And right now at least, foreign luxury brands can have a certain built-in brand advantage over domestic carmakers that don't enjoy the same snob appeal and have few high-end models on the market—though that will change as the years roll on. Wayne Shen, a copywriter with an advertising agency in Beijing, is shopping around for a BMW and is leaning toward a 530 sedan that costs around $80,500. "BMW is a famous brand which makes me feel excellent while driving."

China's political elite and executives at state-owned enterprises (SOEs) apparently feel the same way. Government purchases are a sizable segment of luxury car demand, and in recent years a black version of the Audi A6 has seemed like the bigwigs' car of choice. Volkswagen Audi is the best-selling luxury brand in China right now.