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Cars

Wheels of fortune

By Patrick Whiteley and Wang Chao (China Daily)
Updated: 2011-06-17 17:09
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Luxury carmakers are cashing in on the purchasing spree of China's young millionaires

Wheels of fortune

The Aston Martin One-77 was the most expensive production car on sale in China this year. With a sticker price of 47 million yuan (4.9 million euros), this two-door luxury coupe features a carbon fiber chassis and handcrafted aluminum body. Its 7.3-liter, V12 engine generates 560 kW of power that propels the vehicle to 100 kilometers per hour (kph) in 3.5 seconds before racing to a top speed of 220 kph. The One-77 (only 77 models were made) moniker points to the marquee's most famous owner, Ian Fleming's super spy James Bond, Agent 007.

In the lead-up to the Shanghai Auto Show in April, the British car manufacturer released five models in the China market but aspiring James Bond types had to be quick on the draw. All cars were sold much before the show opened. The sales coup was extraordinary, considering that many auto magazines in 2010 estimated its price to be about 1.2 million euros, a quarter of the amount it fetched in China.

How did Aston Martin get away with asking so much? Because it knew there were thousands of super rich Chinese men, willing to pay whatever it took to become one of the exclusive few.

China's annual economic expansion of 9.7 percent, rising property prices and a strengthening yuan have combined to create a new breed of big spenders. They are mostly male, they are 30-something, and they derive great delight from driving ridiculously expensive cars and showing off their success. They have the desire and cash to live out their 007 fantasies.

"Modesty is not a prominent Chinese characteristic but confidence is, whether founded or unfounded," says Jenny Gu from JD Power and Associates. "They are not shy about displaying their success with a propensity to show off their success through brand name processions."

Wheels of fortune

Christian Mastro, general manager of Lamborghini's Asia-Pacific operations, says Chinese Lamborghini owners are typically 10 years younger than European and American users. [[Photo / China Daily]

Although overall car sales in China have slowed in 2011 to below double digits compared to the dynamic 20 to 30 percent growth of previous years, the luxury segment is soaring to new heights. Consultants Bain & Co estimate deliveries of high-end cars may rise 35 percent this year in the world's fastest-growing economy compared to global sales growth of 10 percent.

The driving force behind the luxury car boom is the dramatic rise of young Chinese millionaires who are valued at more than 10 million yuan (1.2 million euros). According to the Boston Consulting Group, last year there were more than 1.1 million of them, a 31 percent rise compared to the previous year, and among this group were also 60,000 people with personal assets of at least 100 million yuan (12 million euros).

The buying power of China's nouveau rich is expressed differently than in the West because the average Chinese millionaire is only 39 years old, about 15 years younger than their European and United States peers.

It is no surprise that Mercedes-Benz says the average owner of its flagship S-Class sedan in China is also 39 years old. Sales of the company's flagship model during the first quarter grew by 116 percent, compared with the average growth rate of 30 percent.

Daimler AG, the world's second- largest maker of luxury vehicles, reported a 71 percent gain in first-quarter operating profit as growing wealth in China boosted deliveries of the Mercedes-Benz S-Class sedan.

Although demand for Aston Martin, Rolls-Royce, Bentley, Lamborghini, Ferrari and Maserati cars is significantly rising, Mercedes-Benz, BMW, Audi and Lexus account for nearly 90 percent of the sales in China's luxury car market,

In 2010, Mercedes-Benz was the fastest growing premium automaker in China, posting sales of more than 147,670 units, a year-on-year increase of 115 percent. The upward sales trend has continued in 2011, with 70 percent growth in the first five months.

Klaus Maier, president and CEO Mercedes-Benz (China) says the company expects to sell 300,000 units of Mercedes-Benz, smart, Maybach and AMG cars in China by 2015, the year in which the Middle Kingdom will become the German auto firm's biggest market.

Wheels of fortune

Porsche sold more than 13,800 cars in China last year, an annual growth of 60 percent. 

"The young Mercedes-Benz products, in particular, have experienced impressive growth, spearheaded by strong sales of the GLK-Class and B-Class, as well as smart, which has witnessed spectacular growth this year," he says. "By the end of May, we had already sold nearly 4,300 units of smart in China, equivalent to total sales for 2010."

The three-pointed star is investing heavily in marketing to the youth market and flew US basketball star Kobe Bryant to the Shanghai show to promote its edgy-looking smart model.

The Shanghai Auto show was a special event for super luxury carmakers, which all say China will soon become their No.1 destination. Unlike in the West, where auto expos are geared more towards media, Chinese car shows are real market places where potential buyers come to order.

Within the first week of the Shanghai show, some luxury car manufacturers reached their quarterly sales targets adding to their recent bumper sales.

Ferrari expects China to soon become its second-biggest market from its current fifth position. In 2010, Ferrari delivered around 300 vehicles to China, a record number for the company and an increase of nearly 50 percent compared with 2009. Mainland sales for Maserati rose 50 percent in 2010 to 400, putting China on course to surpass Italy this year as its second-largest market.

Lamborghini also attracted plenty of attention in Shanghai, but also took a different marketing tact in an effort to exploit China's furious online activity.

The ultra-luxury sports car maker began online sales in May through Taobao, the country's biggest online retailer and posted 17 models priced between 3.58 and 6.49 million yuan on Taobao.

Wheels of fortune

Klaus Maier, president and CEO of Mercedes-Benz (China), says the company expects to sell 300,000 units of Mercedes-Benz, Smart, Maybach and AMG cars in China by 2015. [Photo / China Daily] 

Lamborghini's online push may just be a novel publicity stunt drawing attention to both the Italian motoring company and Taobao but its business in the world's biggest auto market is very serious and successful.

Automobili Lamborghini China has achieved stunning sales results since the 2005 opening of its first dealership in Beijing when it sold 10 vehicles.

Last year, 206 Lamborghini models were delivered representing a 150 percent year-on-year growth and large percentage of the 1,302 units it sold worldwide.

Christian Mastro, general manager of the company's Asia Pacific operations expects to sell more than 300 units in China this year thanks to the growth of nation's young millionaires.

"Chinese Lamborghini owners are usually 10 years younger (25-35) than European and American users (35-45). They are also fans of super sports cars and they are very rich, some of them being successful entrepreneurs," he says.

British carmaker Bentley was another Shanghai show winner selling 60 models at the expo, mainly for 4 million yuan each. It anticipates China to soon become its biggest market worldwide.

Wolfgang Durheimer, Bentley's chairman and chief executive, says the company's 2010 China sales almost doubled from 2009 to nearly 1,000 units, as it then became the carmaker's third-biggest market.

Last year, Porche celebrated its 10th anniversary and 50,000 owners in the Chinese mainland. In 2010, is sold more than 13,800 cars, an annual growth of 60 percent.

The company has already moved more than 7,200 cars in the first quarter of 2011, and CEO Helmut Broeker expects China sales to surpass 20,000 units this year.

Broeker says the company's true sales success began in 2006 with the second-generation Cayenne SUV. Last year, Cayennes represented 60 percent of the brands sales, making China the largest market worldwide for the model.

Such brisk Cayenne sales moved China to the second spot in Porsche's international markets, following only the United States.

"I would expect that in 2014 at the latest - when our new, small SUV is launched- China will reach the No. 1 position,"

Wheels of fortune

Wheels of fortune 

Broeker says.

The boom in high-end SUVs, such as the imported Porshe Cayenne, is a major contributor to sales rise of luxury vehicles according to automotive research firm, Fourin, which reveals some telling figures.

The largest portion of the imported cars, some 34.6 percent, cost more than 500,000 yuan; more than half the buyers of imported cars in China were young, rich men; 88.3 percent used cash; and men in their 30s and below accounted for 55 percent of the total, making China's luxury-car purchase group the world's youngest.

One of the most exclusive imported cars is Rolls-Royce, which last year named China as its second largest market in the world, placing the UK in third place. In the first five months of 2011, Rolls-Royce sold 678 cars, a massive 146 percent increase year-on-year.

"It will only be a matter of time before the market becomes the largest market in the world for the company," says Jenny Zheng, general manager of Rolls Royce Greater China. "But we have no plans yet to increase factory capacity volume is not the main consideration as there is a need to retain exclusivity with the brand."

Audi imports only 15 percent of its products into China, and now has an annual production capacity of 200,000 units at its joint venture with parent Volkswagen Group and local partner FAW Group. It plans to double this figure as it aims to move 1 million cars in total from 2011 to 2013.

The luxury car unit of Volkswagen was the first top-end car in China when it arrived in 1988 and its black sedan variety quickly became the No. 1 ride for government officials adding power and prestige to the brand.

As a result, it continues to be the biggest-selling luxury car in the country selling 23,800 cars in May, up 22 percent over the same period last year.

Last year, Audi sold 1,092,411 cars globally with sales in German representing 21 percent, and China close behind with 20.9 percent.

Dominique Boesch, president of FAW-VW Audi sales division, says the demand in China has caused brands to be localized.

"The company introduced a climate-controlled cup-holder in its Q5 crossover vehicle, designed for government officials and executives who tend to carry cups of tea in the car," Boesch says.

"Customers love driving our extended versions and for this reason, the extended version of the A6 is only found in China."

Recently, Audi's German headquarters sent three senior designers to work in China for two years. They have been ordered to dive into the Chinese culture, communicate with artists, and make the aesthetic design more Chinese.

Related readings:
Wheels of fortune Auto growth is slowing, but market future bright
Wheels of fortune 2011 auto sales could drop 10%
Wheels of fortune Bentley eyes growing ranks of ultra-rich

Fellow German carmaker, BMW, is also riding the sales tsunami and in May, sold 21,150 cars in China, a year-on-year increase of 51 percent. China is now BMW's third-largest market following Germany and the US.

To cater for this demand, the BMW Group says it will almost double the investment in its second factory, in North East China to around 1 billion euros to enable higher production and increased local content.

With its joint venture partner Brilliance Auto, the factory will have an initial capacity of 100,000 cars a year when it is completed early next year.

"We have never before built a plant in such a short time - 18 months," says Olaf Kastner, president and CEO of the joint venture BMW Brilliance Automotive.

BMW's existing factory in Shenyang makes about 75,000 3 Series and 5 Series sedans annually. This is set to increase to more than 100,000 in the near future and over the long term, the two plants can roll out 300,000 vehicles a year.

One of the newest European players into China's luxury market is Volvo, which was bought by China's biggest private car company, Geely, last year.

Geely chairman Li Shufu believes Volvo must expand aggressively into luxury cars to compete with BMW, Mercedes and Audi.

At the Shanghai show, Volvo launched its edgier looking Concept Universe luxury car, which departs from the staid and safe style that has been so long been linked with the Swedish carmaker's conservative tradition.

The upscale sedan has a sleeker body shape and features pale purple LEDs in its grille pushing the brand more firmly into the luxury segment.

However, the push by Li to move Volvo to a more upmarket class, had caused tension in the executive offices of Goteborg, Sweden.

By changing its product line-up to compete with Mercedes-Benz and BMW in the booming luxury market, some senior management believed Volvo risked diluting its reputation for building safe, family-friendly vehicles.

President and CEO of Volvo Cars Stefan Jacoby wanted the company to focus on safety and fuel-efficiency with smaller cars,

But new owner Li insisted that Volvo change some of its models in order to tap into China's overflowing millionaire market. The Concept Universe luxury car seems to be the compromise.

"Volvo and Jacoby can take the moral high ground and stick with the company's tradition of understated, more modest style," Li told the Wall Street Journal earlier this year, but said the brand has no future in China unless it catered to flashier tastes.

Despite the attention focused on the top-end, luxury cars represented only 3.8 percent of the total auto market last year. This percentage is growing and researchers Fourin say that by 2015 the luxury car segment will clock a growth rate of over 4.7 percent.

Boesch from Audi says the Chinese car market is far from saturated.

"We still have a lot of market potential but everybody can see we are facing fierce competition from other luxury cars," Boesch says. "We will focus more on the niche market and try to maintain the No.1 position."

 

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