- Super-luxury and exotic cars are gaining popularity in China.
- The surge in buying has automakers introducing new models and expanding dealer networks.
- At least a dozen new luxury models premiered in China during the first half of 2010.
SHANGHAI, China — Super-luxury cars are back in vogue in China, even though the nation's highway network and the disposable income of its citizens still fall far short of Western standards.
Wealthy businesspeople in China are ready to splash out more than $5 million to buy dream cars manufactured by Bugatti, Lamborghini and other luxury carmakers. They also have an appetite for all kinds of extras, such as personalized interior colors and floor mats inscribed with their names.
The surge in buying has luxury carmakers going into overdrive with new models and expanded dealer networks. The race is on to fill a lucrative niche market while sales in more developed markets are still suffering the after-effects of the global financial crisis.
At least a dozen new luxury models premiered in the China market in the first half of this year, including the $5.9 million Bugatti Veyron super sports car and the $1.47 million Rolls-Royce Phantom Extended-Wheelbase Edition.
Sales of these cars aren't confined only to the wealthy coastal regions of China. Luxury auto manufacturers are also looking inland, where a new breed of well-heeled consumers is on the rise.
The high enthusiasm in China is a sharp contrast from Western markets, where the luxury segment is still gloomy in the post-crisis era, said Stephan Winkelmann, chairman and chief executive officer of Lamborghini.
Asia-Pacific markets have recovered much better than expected, with tremendous growth not only in China but also elsewhere in the region. By contrast, the luxury-car market in the United States is still languishing and not expected to revive until 2011. In Europe it's a similar story. Luxury-car sales in the first six months of this year remained at 2009 levels.
But is the boom in China sustainable? Some market analysts are wondering. They point out that luxury-car sales may face stiffer pressure in the second half of this year amid concern about slowing growth policies, restraints on the property market and wobbles in stock markets. At the same time, market competition is expected to increase, putting downward pressure on car prices. "The economic complexity will restrict the demand for super-luxury cars in the second half, and we expect the rapid growth in sales to slow," said Xu Di, marketing director of China's Auto Trading, the country's main vehicle importer.
"But we are still optimistic about growth," Xu added. "It's not only because of the low comparison base but also the amazing purchasing power of China's nouveaux riches."
China's booming business prosperity has spawned a new generation of wealth. Last year, according to the Hurun Report, a monthly magazine best known for its "China Rich List," six in every 10,000 mainland people have personal assets worth $1.5 million or more. Forbes magazine reported 64 billionaires in China, ranking the nation second in the world.
So, for luxury carmakers, the writing is on the wall for future sales growth.
Last year, Lamborghini delivered 80 models to the Chinese mainland. The carmaker set a sales target of more than 100 units this year, following the introduction of its Gallardo LP570-4 Superleggera, which costs more than $442,000.
Lamborghini unveiled its special-edition Murcielago LP670-4 SuperVeloce at the 2010 Beijing Auto Show in April, specifically designed for the China market. Although it has a limit of only 10 cars worldwide, the $1.1 million models were sold out during the seven-day event.
"The luxury products segment is very big in China," Winkelmann said. "But the car business is still a niche market and is mainly a boom in four-door sedans. Only in the last year has there been a shift to two-door luxury sport cars. It's our opportunity to get closer to the market and make our brand more known."
Lamborghini now has eight dealers across China, and it plans to increase the network to more than 10 by the end of this year.
Even though super sports cars aren't the stuff of daily commuting and grocery shopping, luxury carmakers aren't ignoring the trend toward a lower-carbon lifestyle. They are endeavoring to make their models lighter and more fuel-efficient without jeopardizing the driving dynamics that make sports-car driving so thrilling. They are downsizing engine capacities and using turbo technology or diesel engines to boost performance.
Porsche is adopting its lightweight construction to lower the fuel consumption of its new Cayenne SUV by 23 percent, to about 22 miles per gallon. Its carbon dioxide emissions have also been reduced.
Zhong Shi, an independent auto analyst, said luxury-car producers are committed to enhancing fuel efficiency, although the cost of driving is not a big deal for their customers. "Gas-guzzling models have been under great pressure from Western environmental protectionists and don't fit China's blueprint for the automotive industry. So luxury carmakers need to make their gestures," said Zhong.
Porsche sold 308 vehicles on China's mainland and Hong Kong and Taiwan in 2003. The figure soared to 9,090 units last year. China is now becoming Porsche's second-largest market, contributing 10 percent to total sales. China is also the largest market for the Cayenne.
Lamborghini's Winkelmann said his company's green strategy aims to reduce carbon dioxide emissions in its cars by 35 percent by 2015. The Gallardo LP 570-4 Superleggera already has achieved a 20 percent reduction.
Luxury carmakers noted interesting demographics in the China markets. The proportion of female buyers is the highest of any country in the world, they said, and the average age of buyers is lower than in the U.S. and Europe. "We are seeing continuous strong growth of Rolls-Royce sales, particularly among younger elites aged between 20 and 30," said Jenny Zheng, general manager of Rolls-Royce for China's mainland, Hong Kong and Taiwan.
Technological advances are considered crucial in breaking fresh ground in China's luxury-car market.
Rolls-Royce recently unveiled its first onboard system that allows motorists to use their iPhone and iPod Touch while driving. That will be available on the company's newest model, the Ghost.
China is now the third-biggest market in the world for Rolls-Royce. Sales in China's mainland tripled in the first quarter of this year. The carmaker has just opened a new dealership in Ningbo, its eighth store on China's mainland, and said it is considering expanding to other cities as well.
Inside Line says: Intriguing trend in the fast-changing country. — Vivian Jin, Correspondent
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