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Automakers Capitalize on Chinese Appetite for Luxury Cars

China is cementing its reputation as the most important market for the auto industry. Chinese auto sales are up 13 percent from a year ago -- with sales expected to top 20 million this year. By comparison, total sales in the United States this year are forecast at just a little more than 15 million vehicles. The importance of the Chinese market is reflected in the size and sophistication of the Shanghai auto show, where automakers are capitalizing on China's growing demand for luxury cars and SUV's.

Bring an auto show to Shanghai, China, and people are sure to come -- tens of thousands of potential car buyers from the world's largest auto market.

Ford Motors' Dave Schoch is counting on it. "So you've got 30 million customers out there, all with different tastes and different affordability levels. And what Ford wants to do is bring the power and leverage of our global line-up, you know from small to medium to large, into China," Schoch said.

But the competition is fierce.

"We are increasing our local content here in this country. And next month we are opening the first engine plant with the capacity of 250,000 units outside of Germany for Mercedes engines," said Daimler AG Chairman, Dieter Zetsche.

The Chinese see cars as a potent symbol of success. Autoforesight analyst Yale Zhang says the rising demand for premium and luxury automobiles reflects China's emergence as an economic superpower.

"This market is becoming more like European or American style entry-level premium like Mercedes C-class or BMW-3 series. This kind of entry-level premium is growing very fast," Zhang said.

Demand has been especially high for larger, sport utility vehicles (SUV's). Karsten Engel, who heads BMW's China Group, says the roomy interiors appeal to China's newly rich -- even though some will probably never drive them.

"The ultimate driving machine, you probably experience a lot from the rear seat with your driver, so you need more space, you want more space. You want to have the possibility to work in the car," Engel said.

That's something luxury automaker Bugatti's marketing director Stefan Brungs understands. "This is what the Chinese have learned and perceived as luxury -- to sit in the back and be chauffeured," Brungs said.

Despite the high demand for larger automobiles, environmental issues and fuel consumption concerns are contributing to the heightened interest in green, fuel efficient vehicles.

"Four years ago, when we introduced the concept of the electric car, most of our colleagues in the industry thought that we had lost our minds. Now it doesn't look so stupid, you know?," said Nissan's Asia Vice President Andy Palmer.

But for now, analysts say new hybrid and electric technology is likely to take a back seat in China. Despite higher government taxes on larger gasoline combustion engines, new data show sales of SUV's are up nearly 50 percent from a year ago and likely to double by 2015.