Luxury car brands motor ahead in China

5 March 2013

SHANGHAI: Sales of luxury vehicles in China are growing faster than the total car market, creating opportunities for new entrants, a survey has suggested.

McKinsey, the consultancy, surveyed 1,200 consumers in 12 large Chinese cities and estimated that, over the past decade, sales of luxury cars grew at 36% a year compared to 26% for the overall market.

A total of 1.25m luxury cars were sold last year with this figure expected to increase 140% to 3m by 2020.

The speed of growth is such that by 2016 China will likely overtake the US market and be on a par with Western Europe, with sales of 2.25m.

Currently, German marques dominate, with McKinsey estimating they account for 80% of the total. Audi alone saw sales rise 30% in 2012 to 405,838 units.

But the authors of the report believe that "Even now, China's premium car market presents a sizable opportunity for latecomers," and they argue that "Japanese and US attackers still have a chance to create a market footprint".

Those opportunities may come in a number of different ways as the nature of the Chinese luxury car market changes.

One example is that more women are buying premium cars and they particularly value exterior styling, safety and comfort, McKinsey found.

And foreign makers start with a built-in advantage as 59% of respondents said they would not choose a local brand when buying a premium vehicle. Further, some 16% thought that a Chinese carmaker would never produce a luxury model to compete on the global stage.

There are also potential geographical openings, as, for example, there are 111 large Chinese cities without a premium car dealership, according to a report last year from investment bank Morgan Stanley.

It also suggested that, as average income rises, the "entry-premium" segment will grow, with young professionals looking to buy smaller cars at the bottom of the luxury range.

Data sourced from Bloomberg/Detroit News; additional content by Warc staff