China becoming engine of luxury car industry

The businessman climbed into the Rolls-Royce with the gold-plated Spirit of Ecstasy hood ornament and sank his feet into wine-red carpet.

He says he has a Mercedes S600 sedan and a Jaguar sports car at home but needs something for work.

"I just have to consider whether it's too flashy. But otherwise there's no problem. The price isn't a big problem," said the 32-year-old visitor to the Beijing car show, who would give only his surname, Liu.

Free-spending new rich, who have made China a key growth market for luxury goods makers, are more important than ever to US, European and Japanese creators of high-end cars.

Sales in Beijing are surging while they sag elsewhere. Manufacturers are pulling out the stops to woo Chinese.

China is "increasingly becoming the engine of our industry," said Dieter Zetsche, chief executive of Daimler. Sales of its Mercedes-Benz cars in China soared 112 per cent in the first quarter of this year, to 23,600 vehicles.

Volkswagen's Audi unit, BMW's Rolls-Royce, Fiat's Ferrari and other makers of high-priced wheels are seeing similar gains.

The surge has been propelled by an economic boom that created a new crop of Chinese millionaires and several dozen billionaires in a country that had almost no private cars 15 years ago.

China's mainland now has 825,000 people worth at least 10 million yuan ($2.05 million), according to Rupert Hoogewerf, a researcher of wealthy Chinese.

The new rich "need some luxury products to validate themselves", said Wang Honghao, editor-in-chief of the Chinese magazine Trends Car. "Whether it's luxury cars or luxury luggage, or perfume, clothes, accessories, it's all the same."

China's car market, the world's biggest since last year, defied the global downturn on the strength of Beijing's 4 trillion yuan, which boosted stock and real estate prices.

Luxury car sales in China soared 66 per cent in the first quarter from a year earlier, well ahead of 14 per cent growth in the United States and a 6 per cent fall in Germany, homeland of Benz and BMW, said J.D. Power and Associates.

BMW's Rolls-Royce said sales in China, its third-largest market after the United States and Britain, rose 200 per cent in the first quarter from a year earlier to more than 20 vehicles, despite a base price of 6.6 million yuan.

"I see China will even overtake the UK, our home market, this year and that we will see the Chinese market as the second-most-important market after the US," chief executive Torsten Mueller-Oetvoes said.

As China's jet-setting elite gets more sophisticated, luxury car makers are focusing on building their brand image with this niche audience.

Rolls-Royce publishes a Chinese-language luxury lifestyle magazine and invites customers from China to visit its factory in Goodwood, England, to see their cars being made. Mercedes-Benz hired movie stars Zhang Ziyi and Li Bingbing to promote its cars.

Chinese customers were getting more discerning, and companies needed to work to reach them, said Matthew Bennett, regional director of Aston Martin Asia Pacific.

"It's simple things like increasing the number of people in the company who can speak Mandarin. The growth in China doesn't come for free. You have to invest, and it will come."

China's most popular luxury car is the Audi A6L, favoured by government officials. Sales were up 14 per cent in March over a year earlier, to 9983, though that was driven partly by stimulus spending that is winding down this year.

Aston Martin - which showcased a DBS like the one James Bond drove in Quantum of Solace - sold about 80 cars in China in 2009. Bennett said China was likely to become the company's top market in Asia by next year.

Bennett got a surprise when he showed the company's concept Rapide, a 12-cylinder, four-door sports car, to VIP customers in Beijing in January.

"We had about five or seven people on the night who said 'Yup, fine, I'll take it'. They hadn't seen other colours. They hadn't driven the car. We hadn't confirmed the price at that point. They said 'no, no, I'll have it'."

The price: 3.6 million yuan.

The luxury car market already is big enough that manufacturers are willing to make basic changes to suit wealthy Chinese customers.

Mercedes unveiled an extended E-class sedan at the Beijing car show aimed at Chinese buyers, who are more likely to sit in back and have chauffeurs. It gives them an extra 14cm of leg room in the back.

Zetsche said the company was open to changing other cars. "I don't think it would be wise generally to adjust and change the vehicles to become 'more Chinese'. On the other hand, there are specifics in this marketplace ...

"To acknowledge these specifics makes sense, and therefore we have this extended version."

- AP