China's love of luxury cars undimmed by domestic troubles

Visitors crowd at the Mercedes Benz's exhibition booth on the first day of Auto China 2014 in Beijing on April 20, 2014. China's desire for luxury cars remains undimmed by an economic slowdown and political austerity drive as the country's growing ba
Visitors crowd at the Mercedes Benz's exhibition booth on the first day of Auto China 2014 in Beijing on April 20, 2014. China's desire for luxury cars remains undimmed by an economic slowdown and political austerity drive as the country's growing band of wealthy motorists set their sights on high-end wheels. -- PHOTO: REUTERS

BEIJING (AFP) - China's desire for luxury cars remains undimmed by an economic slowdown and political austerity drive as the country's growing band of wealthy motorists set their sights on high-end wheels.

In a lavish event off Tiananmen Square, ahead of the opening of the Beijing Auto Show on Sunday, bejewelled models dressed in haute-couture graced the unveiling of Rolls-Royce's Pinnacle Travel Phantom.

The new edition of its flagship luxury sedan, which comes in a two-tone dark red and silver, boasts intricate marquetry in its interior, customised to buyers' requests, a reflection of the expensive tastes of the country's elite.

Mainland China is already Rolls-Royce's biggest market in terms of sales, representing 28 per cent of the company's revenue.

Despite the slowing pace of overall economic growth in China, the future still looks bright for the luxury brand, says the company's chief.

"If you compare to (Rolls-Royce) growth figures we saw here two or three years ago, big double-digit numbers... we see that growth is slowing down, but I am still optimistic about the Chinese market in the medium to long term," CEO Torsten Muller-Otvos said.

"The whole Chinese market has become a more mature car market and that was to be expected," Muller-Otvos said.

But Rolls-Royce can maintain its edge, he said.

"We have the ability to customise cars, which is exactly what Chinese customers love. Our clients are mainly entrepreneurs... who want to reward themselves for their outstanding business successes, and we know everybody personally."

Since becoming head of the Communist Party in November 2012 and China's president in March last year, President Xi Jinping has mounted an austerity campaign among top officials and a highly publicised crackdown on corruption designed to rein in spending.

China's business community has also suffered as growth figures stagnate - last month the country set an annual growth target of around 7.5 per cent, the lowest levels seen in nearly a quarter of a century after years of breakneck expansion.

"The economic slowdown, austerity campaign and crackdown on corruption have already created negative impact on the sales of superluxury vehicles," said James Wu, auto expert at Ernst & Young.

"Bentley and Lamborghini reported (fewer) sales in China in 2013 year-on-year," he said.

However, Mr Wu said the "more affordable" luxury cars have outpaced the growth rate of the auto industry as a whole, with three German companies at the helm: BMW, Daimler (Mercedes) and Audi.

The popular trio dominates the high-end Chinese market and enjoyed sales increases of 20 per cent (BMW), 18 per cent (Daimler) and 21 per cent (Audi) last year.

Audi, the sector leader, sold nearly 492,000 cars in China - its biggest market - and will this year surpass half a million, according to Audi chairman Rupert Stadler.

With officials bound by austerity measures, Audi can no longer rely on the tinted-black window crowd, and is turning to younger drivers, women and those buying their cars for leisure purposes.

"In the past, our customers were very much associated with the government, we had a majority of senior management," said Mr Dominique Boesch, president of Audi's sales division in China.

"Now, over 90 per cent of Audi customers are private ones, a third are women, and 70 per cent are younger than 40 years old."

But rivals are sharpening their strategies, such as the UK-based group Jaguar Land Rover. China was the top market for Land Rover and Jaguar last year, group sales operations director Andy Goss said.

"We provide an alternative to these German brands," he said, adding that a new joint-venture plant was due to open later in 2014.

Also targeting the nation's gilded youth is Japan's Nissan, which has announced the introduction of a compact crossover model exclusively for the Chinese market.

Audi, as well as Jaguar Land Rover and other luxury brands, is aiming to push beyond its traditional base on China's prosperous east coast to other more developing regions.

There is even a hint of such a strategy by Rolls-Royce: its 21st retail space opened in recently in the southwest, in Kunming. Four more are to follow.

Finally, the luxury used car market, still in its infancy in China compared with Europe and the US, is also being eyed by luxury brands such as Audi and Jaguar Land Rover, who both said they want to increase this segment amongst their dealerships.

With an ambitious new wave of consumers from a wider geographical area, China's auto sector is motoring forward despite setbacks - and if consultancy firm McKinsey is correct, by 2016 it will have become the largest car market in the world.