- Photographs by Toby McFarlan Pond, styling by Noemi Bonazzi
The economic slowdown has slammed the brakes on the fortunes of
high-end car makers around the globe. BMW, the world’s largest
luxury-maker, which posted a 19.5 percent drop in first-half unit
sales, is leaving the prestigious Formula One motor-racing series this
year. Porsche is racked with insider battles—including the recent
departure of its CEO and CFO—as its merger with Volkswagen nears
completion, helped along by a cash injection from the Middle East.
Audi, a unit of Volkswagen, reported first-half profit down 25 percent
from the year before. Results are also lackluster for other
high-profile brands like Rolls-Royce, Jaguar and Saab (which General
Motors is aiming to sell by the end of the year). And against the
backdrop of a government bailout of the U.S. auto industry, and
increasing pressure to produce smaller, more fuel-efficient cars, GM
said it is selling its hulking Hummer brand to a company in China. Ford
is also selling its Volvo brand. A leading bidder? Geely Group, one of
China’s largest independent auto makers.
While the rest of the world stalls, China is rapidly becoming the
most important market for high-end auto makers. Luxury-car sales grew 7
percent in China in the first half of 2009 at a time when the rest of
the planet was shunning luxury purchases. Overall car sales have been
climbing strongly, up nearly 20 percent over the same period, making
the country one of the industry’s few bright spots—and turning it into
the largest vehicle market in the world so far this year.
As the Chinese economy has blossomed, those at the top of the
country’s economic pyramid have had ever more money to shop,
particularly for one of the most visual totems of class status. Just
three decades ago, a Flying Pigeon bicycle was the aspirational good
for up-and-coming Chinese. Now, the global high-end auto market’s
“center of gravity is moving eastward” to China, says Dieter Zetsche,
chairman of Daimler, which sells Mercedes and Maybach cars. “Chinese
consumers are redefining what luxury means for them, whether we are
talking about automobiles, fashion or leisure activities.”
The Changed State of Luxury
A sign of the times: Rolls-Royce Motor Cars chose the Shanghai auto
show in April to announce the eagerly awaited name of its new, smaller
and more dynamic sedan, the Ghost, which had previously been known only
by the code name RR04. Rolls-Royce’s decision was a “tick in the box
for the importance of the China market,” says Richard Carter, a
spokesman for the company, which is now a unit of BMW. Among the other
new cars making their global debuts in Shanghai this year: the Mercedes
S-65 AMG, one of its most expensive high-performance models, and a new
Porsche sedan—the first four-door sedan that the company has ever
produced—the Panamera.
China is the No. 1 market in the world for Mercedes’ high-end
flagship, the S-Class. Mercedes sales in China are off the charts this
year—up by 50 percent in the first six months of the year, compared
with the same period in 2008. “It’s just a question of time before
China will be a luxury-car market on a par with the U.S.,” says Jochen
Goller, vice president of marketing for BMW in China. Ferrari sold more
than 200 cars in China last year. For Audi, China is the second-biggest
market in the world, after Germany. “In the long-term, I believe China
will be the biggest Audi market in the world,” says Dietmar
Voggenreiter, president of Audi’s China operations.
To help satisfy the market, Mercedes, BMW and Audi now all
manufacture high-end sedans with Chinese joint-venture partners at
factories in China. Daimler has built an advanced design center in
Beijing to help the company stay abreast of design trends and consumer
preferences in China, while research and development staff work on
special equipment, such as sophisticated entertainment and navigation
systems. “You have to adapt yourself to the market, to the culture and
to the expectations of your customers,” says Ulrich Walker, Daimler’s
Beijing-based chairman and CEO for Northeast Asia.
- Maserati
- Maserati GranTurismo S Automatic
Luxury-car makers are also moving to aggressively expand networks of
dealers and service centers, pushing out from China’s more affluent
East Coast metropolises and into smaller cities in more remote parts of
the country. Even Rolls-Royce is moving into the hinterland. Its
dealership in Chengdu, capital of southwestern China’s Sichuan
province, sold more than 10 cars last year—roughly equal to the number
sold by Rolls-Royce in some small countries. A highway connecting
downtown Chengdu to the airport is lined with high-end car
dealerships—from Porsche and Ferrari to Mercedes and Audi. One man who
runs a family mining business north of Chengdu was visiting the Hummer
showroom there recently, looking at an H2. He said he was thinking of
buying one to keep his Mercedes S-Class sedan from getting dinged up on
visits to the mine. Government and military elites are driven around in
luxury makes. The Audi A8 is a favorite among Beijing big shots. And
BMW SUVs roamed the roads of Sichuan after last year’s earthquake, when
senior army officers showed up to supervise relief efforts.
‘It’s just a question of time before China
will be a luxury-car market on par with the U.S.,’
says the VP of marketing for BMW in China
Chinese luxury-car buyers share the preoccupation with quality and
prestige common to wealthy consumers elsewhere in the world. But there
are also differences. After the leveling of the Communist Revolution
and the decades of economic stagnation that followed, China’s affluent
are, by definition, nearly all nouveaux riches. McKinsey & Co.
estimates that about half of wealthy people in China (which McKinsey
counts as those with annual income of at least $37,000) today didn’t
qualify as wealthy even four years ago. And they often don’t have as
much experience with luxury brands. China’s luxury-car buyers are also
far younger than their counterparts in North America or Europe. The
average buyer of a Mercedes S-Class sedan in China is under 40, Walker
says, while in the U.S. or Europe, the average customer is over 50.
Most luxury-car owners in China still ride in the back of their cars,
which are driven for them by chauffeurs. So they prefer stretched out,
longer wheel-base models with more elaborate backseat entertainment
options, such as flat-screen TVs and DVD players and other amenities,
such as refrigerators. Since GM’s Buick line has a more upscale image
in China than in the U.S., Buicks sold there have more luxurious
interiors.
Foreign luxury marks don’t face much competition from domestic
makers, although some, such as Geely Group and Chery Automobile, have
aspirations to build luxury cars in the years ahead. Geely showed a
concept car at April’s Shanghai auto show reminiscent of a Rolls-Royce,
but with just a single seat in the rear for the car’s presumably very
important passenger. Where domestic companies are stirring up
competition is in producing smaller cars for buyers who are focused on
fuel economy (BYD, a local company that has received a large investment
from a U.S. company controlled by investor Warren Buffett, is racing
ahead with battery technology for electric cars). In turn, this has
encouraged foreign manufacturers to offer hybrids and other gas-sipping
options in China.
Rolls-Royce says that Chinese customers also tend to favor some of
its flashier options, such as illuminated hood ornaments, which use
light-emitting diodes to draw attention to the “Spirit of Ecstasy”
statuette above the front grille. Rolls-Royce’s Carter says that more
than 80 percent of cars sold in China are custom-built, a higher
proportion than in any other market, with customers asking for humidors
and other special additions. Partitions separating backseat passengers
from the driver are also popular. “A lot of business is done in the
back of Phantoms,” Carter says.
Gordon Fairclough is a senior correspondent for The Wall Street
Journal in Shanghai, he has previously been based in Seoul, New York
and Bangkok.
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