May 13, 2014

News & Features

Luxury brands tap into abundance of young buyers in China

The Associated Press

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A Rolls-Royce Wraith is among the luxury vehicles on display at the recent Beijing auto show. (Alexander F. Yuan / The Associated Press)

At age 32, Jason Jia already is the kind of customer luxury automakers are seeking as competition grows in China's lucrative but crowded market.

The energy industry consultant has traded up from a Volkswagen Polo to a VW GTI. As he stood looking at a Cadillac CTS at the recent Beijing auto show, he said he wants a Mercedes-Benz or BMW.

"The engine needs to be turbo," said Jia, who has a budget of 500,000 yuan ($80,000). "Is that a lot of money? Cars over 300,000 yuan ($48,000) are everywhere."

A few years ago, Jia's options might have been limited to cars designed for an older American or European. But now, luxury brands including Mercedes, Audi and Lincoln are racing to create smaller, sportier models for younger Chinese buyers.

They are trying to appeal to local tastes in everything from paint colors to rear-seat comfort.

"The megatrend for us in China will be compact cars," says Martin Keuhl, head of corporate communications for Audi China. "It's not so status-driven in the sense that 'big is beautiful.' Now you can have a good car that is small. Younger people also are more open to this."

Luxury automakers, like their mass-market counterparts, are looking to China to drive future growth and are investing heavily to gain or expand a foothold in its market. This year, while overall market growth is expected to cool to 8 to 10 percent from last year's 15.7 percent, analyst Zhu Bin of LMC Automotive says luxury sales growth might accelerate from 21 percent to 24 percent.

New brands including Ford's Lincoln are entering the market, adding to intense competition. Manufacturers are shifting production to China, allowing them to cut costs and compete on price as well as style.

China's average luxury customer is 10 to 15 years younger than in the West, and buyers increasingly drive themselves instead of having a chauffeur, automakers say.

Torsten Muller-Otvos, CEO of Rolls-Royce, expressed surprise at how young some buyers are.

"Many young customers [are] 28, 29, 30, and it is not inherited money. It is self-earned money. Very impressive," says Muller-Otvos.

Younger buyers, some of them already Ferrari drivers, are looking at Rolls's two-door Wraith, he says.

"This is truly a car for the 'self-drivers,' but it's much more comfortable than a Ferrari, and that is quite attractive here," says Muller-Otvos.

Smaller cars, such as Audi's sporty A3 in the $32,000-$48,000 range, are particularly competitive, Bin says. The market is dominated by German brands Audi, BMW and Mercedes-Benz, which have a combined market share of 74 percent, but competitors are likely to eat into that, he says.

The premium market "should be more diverse," Bin says. "Chinese consumers in the past have not had many choices."

At the Beijing auto show, people like Jia abounded.

Geng Yunning, a mother of a young child, said her family wanted to upgrade their domestic car to a better model.

"If we can afford it, we will get a car that is more spacious, safer and more comfortable," Yunning said, after visiting the BMW exhibition floor.

Han Minghua, an airline employee in his late 30s, was looking to replace his 6-year-old Honda.

"It's an entry-level car — a typical Asian car with a good fuel economy, but its mission has been accomplished," he said. "Our financial conditions are better than in 2008, and we wish for improvement in quality of life."

Audi got its start in China 25 years ago producing black A6 limousines for the government but says today 90 percent of sales are to private buyers.

That is reflected in colors requested by customers, 60 percent of which are now orange, yellow and other light shades, according to Dominique Boesch, Audi sales division president.

Cadillacs sold in China are designed for local tastes and offer more attention to rear-seat comfort, says Joseph Y.H. Liu, a GM China executive. "Stereo control and curtains for the rear seat are a must," Liu says. "So is the 2.0-liter turbo engine. The Chinese consumers expect that."

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