China As An Export Market? No Problem, As Long As You Are German

Nick Taylor’s layman’s observations of American cars in China are a great first impression view. But first impressions can be deceiving. It is true that the Chinese auto market is very much similar to the U.S. market. They love 3 box “real cars” (trend recently shifting a bit), they love SUVs, they love big cars if they can afford them. “American” cars, mostly Buicks, Chevys and a smattering of Fords on Chinese roads are mostly made in China. Just like the “German” or “Japanese” cars that are made mostly in China.

China as an export market for U.S. cars is a whole other matter. China has a 25 percent tariff on imported cars. That pretty much limits car imports to segments where price doesn’t matter, or where a high price acts as a differentiator from the riff-raff: Luxury cars. And this is where Europe reigns supreme.

People’s Daily reports today that “a study released by Bain & Company last week showed that China’s consumer luxury goods market is outpacing every other luxury market in the world, with a projected growth of 23 percent this year.”

An earlier report from the Chinese Academy of Social Sciences had forecasted that by 2015 China will become the No 1 market for luxury goods, with annual sales of $14.6 billion. When that study was released, China was second only to Japan.

Looking at the important players in the Chinese premium car market reveals mostly German names.

• End of September, Mercedes-Benz announced an unprecedented explosion in Chinese sales. In October, Mercedes said China would be its No 1 market by 2015.
• The same month, Audi saw its millionth car roll off the production line. By 2013, another million is predicted.
• In November, BMW released news that within the next 5 to 10 years, China will be its largest market globally.

Even these numbers are mixes of local production and imports. The “lesser models,” BMW 3 series, Mercedes E-Class, everything up to Audi A6, are made in China.

The true luxury models, the Mercedes S-Class, the BMW 7-series, the Audi A8 etc. are imported. The upper crust of the luxury cars, the Bentleys, Rollers and occasional Maybachs must be imported, otherwise, they would be unsalable.

To penetrate China as an export market for American cars, America would have to deliver true luxury, which it simply does not have. There is a small market for high end American SUVs, such as the Escalade. Hummers sold quite well in China while they lasted. But as long as the American buyer has to pick a foreign import if true luxury is on the shopping list, China, the world’s largest car market, will not be a meaningful export target for American cars.

Nick Taylor had it right: If you want to export Made-in-America cars to China, push BMW X6es.