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Latest trend: affordable luxury, going green
June 21, 2012, Thursday
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IN 2009, China surpassed the United States to become the world's largest auto market. In 2012, two trends have emerged to shape the future direction of the market.
The first is called affordable luxury.
Until very recently, luxury brand vehicles in China were still something reserved for wealthy families.
But the situation is fast changing, thanks to a price war that erupted between three German luxury brands earlier this year.
China has become the largest market worldwide for Audi and BMW, and it has become the third biggest market for Mercedes-Benz.
Eager to catch up with its two German rivals, Mercedes-Benz cut the price of its S-Class sedan by 200,000 yuan (US$31,500) in February. The move spurred Audi and BMW to follow suit with equally deep price cuts on competing models.
A price war broke out. In the past three months, the German luxury brands have applied sweeping price cuts to the full range of their products.
Many Audi, BMW and Mercedes models, including mid-sized sedans such as the Audi A4, BMW 5 Series and Mercedes C-Class, now cost only 200,000 yuan to 300,000 yuan.
That means the middle class in China, which typically drives mass-market nameplates such as the Toyota Camry or Honda Accord, can now afford a luxury car.
The second trend is going green.
The Chinese government has spent billions of yuan in subsidies to encourage the development of electric vehicles and plug-in hybrids, but conventional gasoline-battery hybrids still look like the best bet for the medium-term future.
The government now offers a paltry 3,000-yuan subsidy for conventional hybrids.
By contrast, subsidies of up to 60,000 yuan are available for electric cars, and up to 50,000 yuan for plug-ins.
Despite the easing of generous government subsidies, conventional hybrids are starting to win the hearts of Chinese motorists.
Hybrid label
Two weeks ago, I was traveling to Hongqiao airport in Shanghai when I noticed a "hybrid" label on the door of a Lexus CT200 hatchback passing by.
That aroused my interest. I called a Lexus dealership in Shanghai and was told that they also have two other hybrid models on offer - the Lexus RX and LS.
A salesman said the hybrids are selling well. The CT200 was introduced in China last October, and sales now exceed 1,000 units per month. BMW and Mercedes-Benz also have introduced hybrids in China, and more are coming.
At this year's Beijing auto show, Lexus executives said that hybrid versions of all mainstream Lexus models will be available in China.
Meanwhile, Audi plans to introduce hybrid A6s and Q5s in China this year. And the first Infiniti sedan to be produced in China will be a long-wheelbase hybrid-powered M35.
To be sure, hybrids are still an expensive technology, and that's why they are popular only in China's luxury segment. The added cost of the technology is less important to wealthy consumers than middle-class car-buyers on a budget.
But hybrids will claim a larger share of China's mass-market segment as costs and prices decline.
That will start to happen when Toyota and Honda start producing hybrid vehicles and components in China. Toyota plans to produce the Prius and hybrid Camry in China, while Honda will assemble the Insight and hybrid CR-Z.
With luxury brands becoming increasingly affordable to the Chinese middle class, China is well poised to eclipse the United States to become the world's largest luxury car market.
China currently imports 60 percent of its oil. With fuel costs increasing and prices of hybrid vehicles falling, the nation has a good chance of becoming the world's largest market for hybrid vehicles in the not-too-distant future.
The first is called affordable luxury.
Until very recently, luxury brand vehicles in China were still something reserved for wealthy families.
But the situation is fast changing, thanks to a price war that erupted between three German luxury brands earlier this year.
China has become the largest market worldwide for Audi and BMW, and it has become the third biggest market for Mercedes-Benz.
Eager to catch up with its two German rivals, Mercedes-Benz cut the price of its S-Class sedan by 200,000 yuan (US$31,500) in February. The move spurred Audi and BMW to follow suit with equally deep price cuts on competing models.
A price war broke out. In the past three months, the German luxury brands have applied sweeping price cuts to the full range of their products.
Many Audi, BMW and Mercedes models, including mid-sized sedans such as the Audi A4, BMW 5 Series and Mercedes C-Class, now cost only 200,000 yuan to 300,000 yuan.
That means the middle class in China, which typically drives mass-market nameplates such as the Toyota Camry or Honda Accord, can now afford a luxury car.
The second trend is going green.
The Chinese government has spent billions of yuan in subsidies to encourage the development of electric vehicles and plug-in hybrids, but conventional gasoline-battery hybrids still look like the best bet for the medium-term future.
The government now offers a paltry 3,000-yuan subsidy for conventional hybrids.
By contrast, subsidies of up to 60,000 yuan are available for electric cars, and up to 50,000 yuan for plug-ins.
Despite the easing of generous government subsidies, conventional hybrids are starting to win the hearts of Chinese motorists.
Hybrid label
Two weeks ago, I was traveling to Hongqiao airport in Shanghai when I noticed a "hybrid" label on the door of a Lexus CT200 hatchback passing by.
That aroused my interest. I called a Lexus dealership in Shanghai and was told that they also have two other hybrid models on offer - the Lexus RX and LS.
A salesman said the hybrids are selling well. The CT200 was introduced in China last October, and sales now exceed 1,000 units per month. BMW and Mercedes-Benz also have introduced hybrids in China, and more are coming.
At this year's Beijing auto show, Lexus executives said that hybrid versions of all mainstream Lexus models will be available in China.
Meanwhile, Audi plans to introduce hybrid A6s and Q5s in China this year. And the first Infiniti sedan to be produced in China will be a long-wheelbase hybrid-powered M35.
To be sure, hybrids are still an expensive technology, and that's why they are popular only in China's luxury segment. The added cost of the technology is less important to wealthy consumers than middle-class car-buyers on a budget.
But hybrids will claim a larger share of China's mass-market segment as costs and prices decline.
That will start to happen when Toyota and Honda start producing hybrid vehicles and components in China. Toyota plans to produce the Prius and hybrid Camry in China, while Honda will assemble the Insight and hybrid CR-Z.
With luxury brands becoming increasingly affordable to the Chinese middle class, China is well poised to eclipse the United States to become the world's largest luxury car market.
China currently imports 60 percent of its oil. With fuel costs increasing and prices of hybrid vehicles falling, the nation has a good chance of becoming the world's largest market for hybrid vehicles in the not-too-distant future.
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