GUANGZHOU, China (Reuters) – Daimler AG will give its new luxury baby, the Mercedes-Maybach limousine, a glitzy world debut at this week’s Guangzhou autoshow, even as analysts warn the end is nigh for China’s 10-year high-end car sales boom.
The scale of the world’s biggest auto market means the German firm and peers like Jaguar Land Rover simply can’t ignore it. Instead, to cut costs and cushion potential discounts as luxury demand cools, they’re starting or expanding production in China.
Responding quickly to changing consumer preferences since President Xi Jinping’s anti-extravagance campaign began two years ago is key for luxury automakers. IHS Automotive expects premium car sales growth will slow to five per cent by 2018 from an average annual growth rate of 30 per cent over the past decade.
“We want to go for a sustainable growth, growth with quality. It’s not just a volume game,” Ralf Speth, CEO of Jaguar Land Rover said last month in the eastern city of Changshu, where the British firm opened its first overseas plant.
Localising operations in China could help luxury operators target fast responses to changing market trends. It could also help them avoid heavy import duties and price their cars more competitively.
Interest among foreign firms in selling upscale cars in China show no sign of abating even as economic growth slows to the weakest pace since first-quarter 2009. Last month, Ford Motor Co launched its premium Lincoln brand in the country, while Volkswagen plans to introduce luxury cars in China next year.
But the market for ultra-luxury cars, defined by consultancy as those selling for more than two million yuan ($326,632) apiece, has dropped sharply. AT Kearney expects it will barely grow over the next five years.
Meanwhile, sales of less expensive premium brands such as Land Rover and Germany’s BMW have also shown signs of softening.
“The economy is bad,” said Robin Lu, founder of a 12-year-old consultancy in Shanghai, who has postponed his plan to replace his nine-year-old Chevy this year with a BMW. “I used to have dozens of clients, but now, many of them, especially those in the manufacturing and luxury sector, have left.”