Warc Blog

BMW ready for China test

1 July 2013
SHANGHAI: BMW has warned that the growth rate of China's premium car market is slowing, a trend that will erode margins for manufacturers from their current global highs.

The prediction from the German carmaker came despite McKinsey, the consultancy, suggesting in March that China would overtake the US as the world's largest luxury car market as early as 2016, reports the Wall Street Journal, with up to 1.4m premium cars being sold in 2013 and 2.6m in 2017.

In keeping with this forecast, upmarket brands like Jaguar Land Rover and Volvo have announced plans to increase their local capacity, while General Motors is building a new Cadillac plant in Shanghai with the aim of quadrupling its share of the market by 2020.

While overall car sales in the country continue to grow, with the China Association of Automobile Manufacturers reporting a 15% year-on-year rise in sales to 7.3m vehicles, the luxury market is showing signs of flattening.

In the first five months of 2013, for example, sales of BMW's premium cars rose by 9.8% year on year, compared to a 34% leap in the same period in 2012.

However, BMW executives have insisted that this need not be a negative development. Karsten Engel, president and chief executive of BMW's China region, said that growth in China had been too high, reaching peaks of around 40% in recent years.

A period of slower growth, he maintained, would enable the company to take major strategic decisions. BMW, he continued, had been fully prepared for the slowdown.

"Our long-term perspective is absolutely positive," said Engel. "We expect the market to grow strongly."

The company plans to expand its dealer network, improve after-sales service and increase demand for used cars, as well as developing its financial services arm.

It will target the 15m Chinese households with an annual income of $80,000 or more, a cohort Engel said should triple in size over the next 15 years.


Data sourced from the Wall Street Journal, Boston Consulting Group; additional content by Warc staff

 
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