Mercedes

Rich in China? Buy an SUV, pay cash

Luxury auto segment – despite cooldown – from great to good

Many European and American car manufacturers – particularly BMW, Mercedes-Benz and Audi - have until now been able to compensate losses in their home markets with strong sales in China. Expensive luxury models and SUV were selling in large numbers in recent years. The growth in the luxury auto segment in China is experiencing a cool down, due to the slowing down of the economy.

According to a report by the investment firm Deutsche Bank, premium car sales growth rates consistently outpaced the broader Chinese passenger car market in the past two years. “The three German players (Mercedes-Benz, Audi and BMW, ed.) have reported an average monthly 33 percent growth spread in 2010 and 2011. That spread has declined dramatically since April 2012, since when it has stood at just 3 percent."

As a result of the decreased demand, a pricing war has broken out between Germany's big three luxury automakers in which Chinese buyers of the top models enjoy double-digit discounts. "Since the end of last year, luxury car prices have fallen more than 10 percent across all brands," says Michael Dunne, president of Dunne & Co., a Hong Kong-based automotive business consulting firm.

300,000 millionaires
The market for expensive cars in China still large. There are more than 300,000 millionaires in U.S.-dollar terms. According to the latest ‘rich list’ made public in China, more than 500 people had assets of more than $100 million. SUV’s are still immensely popular among those who can afford one. Rich Chinese have bought around 300,000 luxury SUVs this year, at around $80,000 per car. A strong product is the imported Porsche Cayenne starting at $147,000. For the less-rich the assembled-in-China Audi Q5 is on sale for about $72,000.

Pay in cash
More than 90% of luxury SUV purchases are settled in cash, according to research conducted in 2011 by J.D, Power and Associates.