BOOM times for luxury cars in China would appear to be over - for the time being, anyway - following the recent stock markets rout and currency devaluation, compounded by an already slowing economy. Luxury car makers have viewed China as a major driver of future revenue growth and invested billions in factories and facilities to meet what they saw as a never-ending demand for their vehicles. But car sales in China, the world's largest car market, are slowing after years of rapid growth. Last year, the broader market for high-end cars grew around 22 per cent, down from 43 per cent in 2011. And in the past few weeks, the once soaring sales of luxury cars has almost come to a complete standstill. BMW said slowing sales may force it to revise this year's profitability goals. Earnings before interest and taxes are still expected at 8 percent to 10 per cent of sales, though "if conditions on the Chinese market become more challenging, we cannot rule out a possible effect" on the forecast, the Munich-based manufacturer said. BMW has cut production by 16,000 cars in China, its biggest market. Some auto makers have started to slash prices on a slew of models to shift larger volumes of cars, after months of sluggish sales. "The business has been slow for the last 18 months, but lately we have had to discount even more. When people walk into a showroom now, with anything less than 15 per cent discount they would not even consider opening their wallets,” said one BMW dealer operator who preferred to remain anonymous. Another problem for high-end car brands is the pullback from ostentatious purchases amid the Chinese government's crackdown on graft and conspicuous consumption. Audi, the best-selling upscale car brand in the country, recently posted its first sales decline in China in more than two years. Rolls Royce sales have been especially hard hit. Globally, sales of Rolls-Royce vehicles, such as the $386,000 (P14.5 million) Phantom, declined 13 per cent during the first quarter to 781 cars. Last year, the marque sold a record 4,063 autos, a rise of 12 percent. “The money is there, but people don't want to show off by driving around in a Rolls-Royce,” said a spokesman. Bentley is in the same boat. Jaguar Land Rover has also had a puncture in China. Its sales in China fell by a third to 21,920 vehicles during the first quarter of 2015. In contrast, sales in Europe rose by 28 per cent to 28,878 vehicles. To address the slump, some high-end auto makers are turning to locally produced smaller vehicles such as the Audi A3, BMW X1 and Land Rover Evoque. Many buyers of smaller luxury cars are first-time buyers, and auto makers are hoping that by luring them early, they will become long-term loyal customers. Mercedes-Benz has recently joined the ranks of high-end brands manufacturing small luxury vehicles. Producing smaller luxury cars in China means makers like Audi, BMW and Daimler can avoid import duties of 25 per cent, allowing them to sell the cars more cheaply. Almost all imported cars also face Value Added Tax of 17 per cent. style="display:block; text-align:center;" data-ad-layout="in-article" data-ad-format="fluid" data-ad-client="ca-pub-2836569479021745" data-ad-slot="1977900730">
Figures out from the China Association of Automobile Manufacturers (CAAM) states that nationwide auto sales declined 16.6% in July, making it the fourth straight month-on-month decline in sales for the industry in China. Even luxury brands, such as Audi and BMW declined 12.5% and 6.2% respectively in July YoY, making it the first such decline ever in China for these luxury German brands. In response, some have cut prices or cut sales targets, whilst closures have begun in the Hangzhou and Beijing areas. The situation will be exacerbated by new regulations in September from the Ministry of Transport, along with government plans to revise the rules for auto dealerships.