By on December 19, 2011

The Chinese stock market is way down. Real estate speculation had reached its zenith a while ago, and prices are on a downward trajectory. So are prices of luxury cars. Now is the time to get great deals on a BMW, or a “Benz,” as they call a Mercedes in China. Dealers are killing each other with discounts to move the high-end metal. Says China Daily:

“Average prices of Daimler AG’s basic 2012 Mercedes-Benz C200 sedan at Chinese dealerships were 16 percent below the manufacturer’s recommended price last month, compared with 14 percent in October and 3.4 percent in July, when the model became available, according to data from China Auto Market. BMW dealers sold the 2012 320i sedan 11 percent below the suggested price, more than triple the initial discount for the 2011 model.”

Daimler, BMW and Volkswagen had record sales and record earnings this year, mostly driven by healthy exports to and sales in China. This could offset a flat European market, which shows signs of deterioration.

Last month, Audi posted a 69 percent jump in China deliveries to 29,861 units. BMW had a 9.8 percent increase in sales in the country, while Mercedes-Benz increased deliveries by 24 percent. Expansion however never goes on forever.

The benchmark Shanghai Composite Index has declined 22 percent this year and is trading at the lowest since March 2009. Home prices fell in 33 of 70 cities monitored by the government in October.

German makers are looking with worried faces to China. Big capacity expansions are underway, and if increased supply collides with collapsing demand, this year’s high-flyers could soon find themselves flat on  their worried faces.

 

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39 Comments on “Prices Of Luxury Cars Collapse In China...”


  • avatar
    tparkit

    Yup – the vast mountain of debt, corruption, and speculation often referred to as the Chinese economy is about to come down to a heap of worthless paper:

    http://globaleconomicanalysis.blogspot.com/2011/12/china-skids-towards-hard-landing-hot.html

    http://globaleconomicanalysis.blogspot.com/2011/12/chinas-deserted-fake-disneyland.html

    http://globaleconomicanalysis.blogspot.com/2011/12/chinese-banks-under-report-debt-home.html

    Combined with the accelerating collapse in Europe, this is bad news for export-oriented Germany (and the rest of the planet…).

  • avatar
    jhott997

    Anyone who follows this business knows there is roughly 35% excess capacity BEFORE all the irrational and excessive expansion in China.
    China is collapsing before our eyes and nobody is talking about it. The real estate market is in free-fall. The Chinese Central Bank is changing its policy position from controlling inflation to one of promoting growth. All of this combined with the growing storm in EU is not good. Demand is falling, hard. Supply side is the way to address this issue, as it always has been. But we can’t talk about supply economic policies, can we?

    How ironic that we can’t let GM liquidate because that event would “destroy demand” because of job loss yet GM’s, for example, excess supply will kill demand because of price depression which leads to weak ROI which leads to weak business environment and finally weak job prospects and weak demand. Funny how that stuff works, isn’t it……

    The past three years of turmoil in the US was nothing compared to what will happen the next 5 or so years. When all the consolidation shakes out there there will only be 5 major OEM’s left. Does not take much imagination to name the 5, except maybe how EU shakes out. I am afraid, though, that the EU is at the beginning stages of a major economic collapse that will have the same destruction effects as a physical war.

    The amateur observers of this industry continuously ignore the fact of overcapacity in this industry. GM liquidating would have gone a long way to addressing some of the overcapacity. GM could not gain private capital in the market, and still can’t, but continues on because the US Treasury chose to nationalize GM for the benefit of a historically powerful labor union. The capacity consolidation, and uncertainty, will continue for the next several years and will be painful for many people and regions.

  • avatar
    jhott997

    Since the post was deleted I will relink.
    Great site by the way:
    http://globaleconomicanalysis.blogspot.com/2011/12/china-skids-towards-hard-landing-hot.html

  • avatar
    jhott997

    One could argue that the US Treasury nationalized GM because it foresaw that the debt driven economic collapse would continue. So, nationalize GM, protect it and hope that when everything shakes out then GM is left standing because it has the power of the US Treasury behind.
    Problem is the politics of it. People are pissed at GM and some of the pissed off people are now showing themselves over at Saab. It will continue with GM and with people being pissed off. They ask “why GM and not us?”. It is a valid and honorable question.
    China is collapsing and it will be interesting to observe what industries the Chi-Coms protect…
    What do they value?…

    • 0 avatar
      mike978

      You say with respect to Saab “why GM and not us?”. Saab was sold several years ago by GM by a private company. If they don`t have the money to continue it or if the Swedish Government chooses not to help (they don`t have a debt issue by the way) then that is not GM’s fault.

      I think you jump too readily on some economic data to forecast that China is collapsing. It could easily be growth “pains”. Time will tell.

      • 0 avatar
        jhott997

        mike978:
        1: it is not just the Saab faithful that are “pissed” at GM. If you would leave the comfy confines of Detroit once every 10 years or so you would see this and maybe recognize it.
        2: Never said any of this was GM’s fault. GM should have been liquidated as Saab will be. It is best for the market and best for the moral hazard.
        3: As to China, where is your money?… If you believe this is just a blip in the road you don’t know Chinese history and your saving, if you have any saving, if going to be lost.

      • 0 avatar
        mike978

        jhott – just some corrections. I have never been to Detroit (live in NC) and have never owned a GM (or Ford) product. Currently have a Toyota and a Subaru. So I don`t think you can pin the misleading “GM fanboi” tag on me.
        I don`t know if the news of price declines in 50% of Chinese cities and other assorted news is a blip or not. As I said clearly, time will tell. There have been plenty of people who assert one thing is going to happen and it doesn’t turn out that way.

      • 0 avatar
        jhott997

        mike978,
        You are right. It was presumptive of me to assume you were living in the Detroit area. I apologize for that.

        China is collapsing. It is happening before our eyes. But, funny thing about history, you don’t know it has happened until after it has happened.
        However, there are lessons to be learned from history and it seems the world has not learned some lessons.
        Time will tell. I am confident in my predictions.

      • 0 avatar
        damikco

        Why be pissed at GM and Chrysler, and not the Big banks that took much much more money, and eventually laid of workers and still to this day not loaning money.

    • 0 avatar
      carbiz

      Great segue, by the way: blaming GM for the world’s evils.
      How much Toyota stock do you own?

  • avatar
    th009

    A 16% discount on a new model is indeed a pretty grim picture. But the same article says that Audi’s outgoing A6L is being discounted only 6% (the new A6L will be launched next month) so maybe the Mercedes demand is the worst of the lot, rather than being typical of all luxury cars. BMW’s 3-series is also the old model (assuming that the new 3-series will arrive in China sometime next year) so 11% isn’t quite as disastrous as the C-class number.

  • avatar
    Tstag

    I bet JLR are happy about this. They don’t have a factory in China yet and despite strong sales in China could wether a downturn there. Within 12 months they will probably open a factory in China to cash in on all the sales they are currently loosing out on. For once JLR could be the one that gains at the expense of Germany’s big 3, who may by then also be grappling with a strong Mark.

  • avatar
    johnhowington

    people have been crying wolf about china for the last 3 years. they are very smart, and will continue their ponzi capitalist economy way better then the USA ever could.

  • avatar
    tced2

    I read that it is estimated that China has over 60 million empty apartments. Real estate bubble indeed. I hope their “command and control” economy is in good control because they’re going to need it. The demand for luxury automobiles has declined, the prices of the luxury automobiles have dropped. Sounds like market forces at work to me.

    • 0 avatar
      forraymond

      Looks like supply-side economics is working as well in China as it did in the US.

      Face it – it does not trickle down!

    • 0 avatar
      th009

      @tced2, the demand hasn’t actually *declined* as all top luxury manufacturers are seeing sales increases in the double digits — it’s just that it hasn’t increased as fast as the manufacturers were hoping for.

      • 0 avatar
        tced2

        The price of the luxury cars has declined about 15%. Why? Charity from the luxury auto makers? No. The demand has declined and the prices have dropped in reaction. That’s called a market. After the price decline (of 15%) the market demand has risen. Once again, that’s called a market.

      • 0 avatar
        th009

        @tced2, if there are still significantly more buyers than last year (Audi was up 28% year-over-year in November), the demand isn’t actually down. But since supply has grown even faster than demand, the prices have dropped in reaction, especially on less-desired models (like the new C-class). Note that most prices have not dropped nearly as much as the C-class.

    • 0 avatar
      wsn

      “I read that it is estimated that China has over 60 million empty apartments.”

      That’s what I call bullsh*t.

      There are 1.3B Chinese, roughly 300M households. Of of those, more than half live in rural areas (i.e. no apartments for them). And now you are saying there are 60M empty apartments for the 150M urban families?

      Put in another perspective. Every year, there are roughly 5B sqft of new construction apartments for sale. At 900 sqft each, 60M “empty” apartment would have 54B sqft. Means that in the past 11 years, no Chinese have actually lived in the new aparments.

  • avatar

    more on China

    http://www.nytimes.com/2011/12/19/opinion/krugman-will-china-break.html?ref=opinion#

  • avatar
    obbop

    Just “vote the bums out” across the planet and all will be well.

    Right?

  • avatar
    hreardon

    There’s a saying in the world of speculation and high finance: the market can stay irrational far longer than you can stay solvent.

    Is China in a bubble? No doubt.
    Will the bubble burst? No doubt.
    Will it be a hard landing? Very likely.
    Can we accurately predict when this will happen? Hell no, otherwise some of us would be wealthy beyond our wildest imaginations.

    China’s over-expansion will be a major problem at some point, but who knows when that will be.

  • avatar
    OldandSlow

    This may or may not apply to China – but in 2006 while looking at a downtown condo here in the States, a realtor told me that with regards to the market value, the sky is the limit – so buy now.

    • 0 avatar
      Dynasty

      Ahh, the mantra of the real estate agent, “Buy now”

      Prices are going up, “buy now”

      Prices going down, “buy now”

      Prices staying flat, “buy now”

      I was looking to buy in 2006/07 and became totally discouraged by how far from reality prices were and how dumpy these places were. My real estate agent basically said the same thing, “prices aren’t going to go down. Now is the time to get in. Buy now..”

      Fast forward to 2008 when prices had gone down I ran into her. She said, “prices are down, there are some great deals out there. You need to buy now” My response was you guys always say that. So she reiterated that it was REALLY the time to buy now.

      Almost four years later.. and prices are still falling. I bought in 2010, should have waited.

  • avatar
    Trend-Shifter

    I do not think the slow down of car sales or price reductions is related to the general China economy. It is more about a slight shift in wealth.

    The wealth is in the hands of the business owners. They have been flush with cash and they do not share it with their workers.
    Each business owner tries to just pay the government mandated minimum wage. Recently they have been hit with 20% mandated labor increases for their production staff and feel shocked. Now it’s all relative because they used to pay them $141 a month and now they must pay them $173.

    I just returned from 3 weeks in China visiting our suppliers. The business owners are all crying the blues about labor costs and wanting to raise prices significantly. These are the same business owners that earlier in the year were bragging about their new 7-series for himself and a Porsche Cayenne SUV for the wife. This while they are sending their children to offshore schools and buying more apartments.

    The economy is still spinning along since the workers have more money to spend. The business owners have temporariliy pulled back because they seen a blip in their massive incomes.

    So the end result is more people are buying phones, wash machines and low end items while the rich just got a mild shock and pulled back. The rich business owners will get over it and realize they still have a piles of cash rolling in and will return back to their show-off status ways.

    • 0 avatar
      obbop

      Reminds me of the picture from long ago (pre-Web era) showing the obviously very well-fed street-side rice seller in a China city with an extremely emaciated waif lying in the gutter in front of the smiling-for-the-picture-taker rice seller.

      The pic was intended to show vile conditions in China during the Japanese invasion.

      Pic may have been staged… no way to prove or disprove but the child WAS way too skinny to be healthy and the vendor WAS a tubbo.

      Look into China’s cultural and religious history and other aspects of the culture.

      Compare and contrast with general western European cultural norms and submit 40 page double-spaced paper no larger then 12 sized font in New Times Roman.

      Cite sources.

      No Web sources.

      Paper due Jan. 14, 2012.

      One full grade reduction for every day late.

      No submissions more than two days late.

      Plagiarism is an auto F and reporting to dept. head.

      Bwa hah hah hah hah hah!!!!!!!!!

      As Professor Disgruntled Old Coot rubs his age-withered hands and revels in groans and lamentations of despair as the assignment is given three days before the winter break.

  • avatar
    Mark MacInnis

    Uh-huh.

    The Chinese economy will be the last domino to fall….and when it goes, the world economy goes.

    Are luxury car sales the so-called “canary in the mine shaft” of the Chinese economy?

    Lord, we’d better hope not!

  • avatar

    David Goldman, aka “Spengler”, was saying that the Chinese banking system was a house of cards years ago. A big chunk of the “assets” that Chinese banks have on their books is worthless, equity in businesses that was converted from bad loans that couldn’t be paid off. A lot of those indebted businesses are gov’t owned or formerly gov’t owned. I think it was ’07 or so, but at the time Goldman claimed that about 25% of the Chinese banking system was based on paper assets that were maybe worth the paper they were printed upon.

  • avatar
    acuraandy

    So, as I have mentioned before…what happens when China’s economy collapses and they want to ‘cash in’ on US T-bills?

    And we end up not having the $?

    http://www.thetruthaboutcars.com/2011/11/how-chrysler-helped-to-arm-the-chinese-army/

    These end up at checkpoints on every main street and freeway exit in the United States with Chinese soldiers in broken English asking for our ‘papers’ (post-invasion). See ‘Red Dawn’.

    MARK MY WORDS.

    • 0 avatar
      mike978

      China holds around $1 T in debt (http://en.wikipedia.org/wiki/United_States_public_debt) so even if they wanted to cash it out it is only a small proportion of the debt at $15T. Are they likely to want to cash it all out, since it requires someone to buy it before the maturity date.

      • 0 avatar
        acuraandy

        Macro-economically it is still a lot of paper. And if Americans are unable to buy as many of their goods due to the $ being worth less, it just exasperates the problem.

        Like I said, hope i’m wrong.

      • 0 avatar
        th009

        A weaker dollar would strengthen the US economy by encouraging exports and discouraging purchases of imported goods.

        And as Mike978 says, you cannot just “cash in” bonds — they cannot be redeemed before the maturity date. (Of course if you find a buyer you can sell them to someone else.)

  • avatar
    wsn

    Put in another perspective, Beijing’s real estate is roughly 1/5 that of Hongkong’s price. I would say that Beijing is still undervalued.

  • avatar
    tekdemon

    Pretty sure people call them “Benz” all around the world and not just China…
    http://video.google.com/videoplay?docid=3182114977572415746

  • avatar
    tekdemon

    That’s not really that bad considering that there are like 200% tarriffs on these cars lol.


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