As China prepares to transition to new leadership, its government has begun advancing plans for economic growth based on consumer spending, instead of investment and exports. This can only bode well for the nation’s auto market — already the world’s largest — since the rebalancing aims to boost household income and encourage domestic purchases. As a result, the Chinese auto market’s sizzling luxury segment could see even greater growth.
All of this should ultimately benefit American automakers, who are positioned well in the overall Chinese market, and are now laying plans to move up in its faster-growing and more profitable premium segment.
Luxury market hot and getting hotter
China’s overall auto market has been bigger than the U.S. market since 2009. Last year, it surpassed all of Europe combined. Some observers feared luxury sales might dip as the government started putting anti-inflationary measures into place, but total demand kept rising throughout 2012.
More significantly, luxury sales continued outpacing overall car sales. The category racked up 36% average annual growth over the past decade, compared to 26% for China’s total auto market. And several recent studies project that these sales will grow only stronger in the years ahead.
A recent report from McKinsey & Co., for example, estimated that China’s luxury sales would grow from 1.25 million in 2012 to 3 million in 2020 — surpassing luxury sales in the U.S. and Western Europe along the way. The potential increase seems particularly viable when you know that more than 100 very large cities in the country still don’t have a single dealership peddling these premium vehicles.
U.S., others challenge Germans for luxury customers
On the heels of another strong year in 2012, German automakers solidified their leadership of China’s luxury sales; they now claim 80% of the segment. Volkswagen’s Audi brand remained the luxury leader, followed by Bayerische Motoren Werke’s BMW, and Daimler’s Mercedes-Benz (the only one of the Big Three to see slowing growth). All have announced aggressive plans to try and cement their top positions.
But global competitors aren’t giving anything up to the Germans.
Chief among them is General Motors Company (NYSE:GM) . In 2012, it grabbed the overall sales lead in China among all foreign automakers for the eighth consecutive year, but it’s battling a strong challenge by Volkswagen. Its hopes to remain on top rest with Bob Socia, installed in October as the new president of GM China. Socia will oversee development of several new plants that will increase the company’s domestic production by 20%, as well as the addition of 400 new dealerships this year — following the opening of 700 in 2012.
Perhaps even more notably, Socia reportedly desires a stronger China presence for Cadillac, and he’s revving up the brand to attract luxury customers. Until this year, the company sold only SRX and CTS models in China. But it added 90 new Cadillac outlets in 2012, and plans another 40 this year, primarily in the country’s largest cities. In 2013, it’s introducing the XTS model, which will be followed by an Escalade launch.