Luxury Auto Sales In China Slow Sharply In
2004
In 2004, sales of luxury automobiles in China slowed
sharply. Both Audi and Mercedes Benz failed to meet their
sales targets for the year. Other auto makers, including
Volkswagen, the parent of Audi, also performed poorly.
Audi sold 64,018 cars for a gain of 0.8% in the market,
while Mercedes Benz sold 11,500 cars in Hong Kong and
China, for a gain of 5%. Their respective targets for
the year were 80,000 cars (Audi) and 13,000-14,000 (Mercedes
Benz). More than 50% of Mercedes Benz's sales were concentrated
in the S class sedan, which is the top of the line for
the luxury brand. BMW, another luxury car maker, also
saw its sales fall by 16% to 15,500, after skyrocketing
to 176% in 2003.
Volkswagen, a major non-luxury car manufacturer in China,
has also taken a bad hit in China, registering a drop
of 6.8% in 2004 with sales of 655,118 vehicles.
In 2003, BMW, General
Motors, Daimler
Chrysler, Volkswagen and Mazda all
experienced sales growth of more than 100%. Based on
this growth spurt, and excess manufacturing capacity
outside of China, all announced plans to expand manufacturing
capacity in China. This has led to projected excess
capacity in the Chinese market, and difficulty in differentiating
and positioning their models, which are already seen
as commodities by
many prospective Chinese buyers. For most auto makers,
this means that they will be caught in tough price
wars as they seek to move their inventory.
The only brands which will be able to differentiate
themselves are those which introduce new technologies
which are less dependent on traditional carbon-based
fuels. Toyota, maker of the hybrid
Prius model, which has been very well received in
the US market, has already announced plans to assemble
the model at its new plant in Changchun.
On the consumer credit side, the Chinese government
announced measures
to tighten up on auto financing. Special attention
was paid to tightening up on loans made by auto
finance firms, which are relatively new in China.
The US auto makers are highly dependent on auto loan
financing for their income, which are more profitable
in the US than their manufacturing business.
Adding to the price pressure on automakers has been Chinese
government policy, which has been to force consolidation
in the market, which will dramatically lower the number
of car makers in China. The Chinese Ministry of Commerce
said that makers with capacity of less than one million
will not be able to survive, and those with capacity
of less than two million will face strong restructuring
pressure.
Faced with intense price pressure in China, and reluctant
to be forced into shotgun alliances with other makers,
all makers will now have to consider exporting excess
production from their China plants until the Chinese
consolidation period ends. Some of the faster moving
Chinese local companies are already diversifying
from the Chinese market, which has become hyper-competitive.
The Chinese government policy move means that the downward
price pressure, which is already strong in China, will
be exported to other markets as Chinese-made cars show
up in showrooms in around the world.
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