China’s Luxury Auto Market

Published on Author spencerb15

China is the largest auto market in the world. With a population of well over one billion people and a growing economy, the luxury auto industry is also becoming increasingly important in the country.

Companies like BMW and Audi, however, are questioning their growth within the market. Although new products introduced in the country continues to remain high, BMW alone will introduce ten new products this year, new car sales are slowing. Depending on the method of measurement, sales have either grown slightly or declined during the beginning of this year compared with last year.

Many dealerships on the ground in China attribute this decline in growth to the overall economic deceleration the economy is seeing. Luxury auto companies continue to expect high growth and sales in the market, but expectations might have to be adjusted to current economic conditions.


4 Responses to China’s Luxury Auto Market

  1. To date the rapidity of expansion of passenger car demand has partially blinded firms to the fact that this can’t continue forever. Everyone is optimistic about their final market share — the market may not grow much, but we don’t have the share our global operations suggest we should be able to achieve. Boards are all pressuring management to get ahead of the game, that if they don’t hurry they’ll be too late and never be able to achieve a decent share of the market.

    All of this is a focus on assembly and engine / transmission capacity. Where are suppliers located, relative to new entrants? What of dealerships and marketing? No other market has as many brands as China. Yes, it’s a bigger market, but IO [industrial organization = Econ 243, the economics of business strategy] suggests the number of brands a market can support will grow more slowly than the market itself.

    To date it’s purely domestic firms that have fared poorly: Chery, Geely, BYD [of Warren Buffet fame] and others, including the domestic brands of FAW and SAIC, have on the whole lost market share and in some cases simply not grown, while 40 others have exited and 20 more produced no vehicles in the most recent year for which I’ve seen data. I would not be surprised to see one or two global brands share their fate.

  2. Another reason for the decline of luxury goods is the crackdown on government corruption. Before recently, government officials would spend enormous amounts of money on luxury goods. A lot of this money came from illegal activity. With a crackdown on corruption, these government officials are now more likely to spend there money in less flashy ways to hide their corruption. Like you said however, the major cause for a decline in vehicles is most likely the slowing economy.

  3. I agree with the previous comment; this decline is absolutely is due to, in part, by the efforts to thwart further corruption within China’s provincial governments. As we read in Hessler’s book, Audis were the car of choice for government officials, while others could not even dream of obtaining a license, let alone owning a luxury automobile. Perhaps the luxury auto makers could focus on leasing, rather than outright selling, their cars in order to maintain a reliable source of revenue in China.