Chinese Demand for Premium Autos on the Rise

In stark contrast to this year’s other high profile auto shows that seemed almost single-mindedly focused on smaller, more affordable vehicles, China’s Guangzhou Auto Show, being held this week in Shanghai, is serving as the backdrop for automakers to showcase their larger, more expensive premium autos.

Through October, China’s automotive market has grown by approximately 38% while sales in North American and European markets plummeted. Driven in large part by government stimulus measures, the bulk of growth in auto sales was in the small car sector. Demand for luxury vehicles remained low as the global financial meltdown took its toll on China’s export-dependent coastal regions but those areas have begun to rebound and premium automakers are scrambling for their piece of the pie.

Japan’s No. 1 automaker, Toyota, chose the Guangzhou Auto Show to debut the latest version of its Lexus GX series SUV, the GX460. According to Toyota, the GX460 is “a unique combination of off-road performance and driving comfort.” The vehicle will launch in China and other global markets in January.

GM showcased a redesigned version of its popular Cadillac STS. The China-targeted SLS model features a roomier back seat to make it more attractive to wealthy Chinese consumers, many of whom have chauffeurs. The new SLS marks the first time GM will offer roadside assistance and its OnStar navigation system to Chinese buyers.

Other automakers plan to offer premium models targeted to the Chinese consumer. Among them are Nissan’s Infinity and Daimler AG’s Mercedes-Benz luxury brands.

GM’s China Group president Kevin Wale says that China’s demand for luxury goods, including autos, will return. He said, "The economy is strong here, and along with that goes more income generation, and more luxury auto sales. It’s going to be very extensive growth."

Wale expects China’s demand for premium autos to outpace overall demand by two to one and predicted that Cadillac sales in China will recover in 2010.

Wale’s optimistic outlook comes on the heels of a 7% decline in Chinese sales through last October.

Wale attributes that decline to GM’s slow response to the aggressive incentives initiated last year by the Chinese government. Among those incentives, aimed at encouraging consumers to buy smaller, more fuel-efficient vehicles, was a tax increase on the purchase of autos with engines larger than three liters.

In comparison to GM’s flat-footed response, Toyota introduced a China-only version of its luxury Lexus ES240 equipped with a smaller engine to qualify it for the lower tax bracket.

Senior analyst for CSM Worldwide, Yale Zhang, predicts that China’s luxury vehicle sales will grow by 26% to 315,000 units in 2010. He said this year’s sales will likely increase by about 6% year-to-year.

He anticipates that economic improvements, particularly in exports, combined with easier access to financing will create an environment in which premium-auto sales “will likely rebound strongly next year.”

Banking on such rosy predictions, Nissan took the occasion of the Guangzhou Auto Show to unveil its new GConvertible, which is scheduled to arrive in Chinese showrooms early next year.

Mercedes-Benz also launched several new models at the Guangzhou Auto Show. In the last three years China has gone from the automaker’s tenth largest market to replacing the U.K. as its third largest market in 2009 according to president of Mercedes-Benz China, Klaus Maier.

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