When the luxury goods industry decided to showcase a selection of exclusive items to the country’s elite at the Shanghai Millionaire Fair in June, ACNielsen polled the crowd. The results showed that over 25% of respondents seriously considered buying a luxury vehicle in the next 12 months.
Approximately 80% of these respondents answered that the country’s new purchase tax had no impact on their plans to purchase a luxury vehicle. Increasing fuel costs were also not a deterrent in a luxury car purchase.
The demand for luxury autos is an upward trend. Last year, an estimated 150,000 luxury cars were sold on the mainland, and sales volumes are expected to increase an additional 20% to 30% this year.
Unsurprisingly, China’s affluent have a growing penchant for all things expensive. The Chinese are currently the world’s third-largest luxury good consumers. In 10 years, the country may even overtake Japan as the world’s top consumer of luxury goods, with an expected quarter of a billion people snatching up luxury items.
The profits reaped by luxury carmakers from by China’s high-spenders are compelling. A case in point is Lexus, which recorded a five percentage point increase in sales during the first six months of this year.
But Audi leads the pack. Last year, the Audi A6 was the most popular luxury car in the country. In terms of sales revenue, Audi also dominated the high-end auto segment with 52% market share, followed by BMW on 23%, Mercedes Benz at 12%, and Lexus on 8%.
Competition in China’s auto market is fierce as consumers now have more choices than ever before. New releases and upgrades are coming thick and fast from the likes of Cadillac, Chrysler, Volvo, Acura and Infiniti.
Clued up consumers
China’s young middle class – 26 to 35 year olds with a monthly household income in excess of US$649 – comprise the largest group of private owners in the low- to mid-priced auto segments. Nearly 40% of this group are single or married with no children.
ACNielsen research showed that traditional channels such as word of mouth, visiting and talking to dealers, attending showrooms and reading car magazines influenced a consumer’s decision making process in purchasing a car, but the internet tops the list.
The internet has become a powerful platform in China in car purchasing as it offers a means of validating purchases or even negotiating a better price via “group buy,” where a group of consumers bid together to drive down the purchasing price of a car.
According to ACNielsen’s research, car dealerships placed last on the list across all auto segments – they are merely seen as a sales agent instead of a bridge between the automotive manufacturer and consumers.
The test drive, on the other hand, presents a good opportunity for manufacturers to build consumer-brand relationships. Test driving a new vehicle is also important for all car consumers, whether they are first-time or repeat buyers.
Maintenance is an expensive added cost for mainland car owners. Last year, ACNielsen online research surveyed the purchasing habits of automotive consumers across 10 provinces in eastern China. Participants spent an average US$145 per month on car-related expenses.
The percentage spent on different car-related items varied by market but, unsurprisingly, fuel accounted for over half of car upkeep costs across all provinces.
The survey also found that the thriftiest auto consumers were from Shandong, where they spend an average of US$113 per month on car maintenance. Shanghai city dwellers spent the most at US$177 per month.
Meanwhile, consumers Shanghai, Beijing and Guangzhou spent the most on parking – 14%, 10% and 9%, respectively.
In the low- to mid-range auto market, the average price paid for a vehicle is about US$25,974, with car prices ranging from city to city. In Liaoning, for example, the minimum price can be as little as US$18,602. Meanwhile, in Beijing and Shanghai, low- to mid-range autos come in at a minimum cost of US$22,835 and US$30,013 respectively.
For the country’s elite, luxury autos can range from a starting price of about US$50,000 and reach into the millions for big-name brands. But since price is usually not a factor, the luxury car segment continues to grow and cater to this exclusive crowd.