China’s luxury car market
If you are rich and you want the world to know this, you must sport a flashy car. The situation gets headier if you are barely in your mid-30s.
This is currently the situation in China, where the luxury car market has grown by an incredible 36% annually over the past decade. The young age group of luxury car buyers has had a major role to play in this.
Although things have slowed down in the current decade, McKinsey still expects the annual growth rate of China’s luxury car market to be around 12% till 2020. By then, China will have overtaken the US as the biggest luxury car market in the world. Analyst predictions call for luxury car sales to reach about 2.7 million in China by 2020, compared to 2.25 million in the US.
GM’s target
General Motors Company (NYSE:GM)’s does not want to lose out on the luxury car opportunity in China. The company believes that China will account for up to two-fifths of the global luxury auto market by 2020. True that its current share is just 2.5% in the luxury segment, but it is still the largest car seller in the country.
So now the US auto giant has a target of tripling the number of Cadillacs sold in China to 100,000 by 2015 and expanding its market share to around 10% by 2020. The company is looking at around 250,000 luxury car sales by that time. GM has selected its 110-year-old luxury brand Cadillac for making this happen. In 2012, it sold around 30,000 Cadillacs in China.
It was imperative for General Motors Company (NYSE:GM) to make this push sometime. Despite its being the biggest car seller in China, it is not able to make as much of a profit as rival Volkswagen because of its limited presence in the luxury segment.
Luxury cars are typically priced between $32,000 and $190,000 according to McKinsey’s estimates and carry fat margins. Volkswagen generates a lion’s share of its global profits from Audi sales in China.
A huge challenge
The Chinese equate luxury cars with German brands. Audi, Mercedes-Benz, and BMW completely dominate the market, holding approximately 70% market share between them. At the end of last year there were more than 300 BMW and Audi stores in the country and some 260 Mercedes stores.
Audi leads the market with approximately 29.6% share. It increased sales by 29.6% to a record 405,838 units in 2012, outselling Cadillac by almost 14:1. In 2013, Audi’s popularity remains as strong as ever with sales jumping 16% in May. Volkswagen has its own ambitious plan of increasing annual Audi sales in China to 700,000 units. General Motors Company (NYSE:GM) has a tough task at hand.
To make the task even more challenging, General Motors Company (NYSE:GM)’s cross-town rival Ford Motor Company (NYSE:F) will debut its luxury brand, Lincoln, in China in the second half of 2014. It is true the Lincoln has lost its glory as the leading luxury brand in the US as Ford Motor Company (NYSE:F) has focused on other segments. Sales fell to about 82,150 units in US in 2012, down from its peak of 231,660 units in 1990. The story may change very soon, however.
