Mercedes dealers across China are offering 25 percent discount on luxury models like the S300 sedan. Audi’s A8Ls and BMW’s AG's 7-series is sold 20 percent below the label price. Apart from this, free iPhones and Hermes-bag coupons are used by salesmen to lure customers.
It is clear from the increasing price competition that luxury cars are not able to attain higher profit margin in Beijing as compared to Berlin and New York. With the slowdown of China’s economy and rich people in the country finding more and more vehicles to choose from, the discounts which were earlier provided on entry level models moved to high end luxury cars.
Scott Laprise, automotive analyst at CLSA Asia Pacific, said, "This year's luxury-car discounting is the most I've ever seen," He further added, "China's luxury car price premium is eroding." According to an official at the state-backed auto association, vehicle sales in China for the year 2012 will miss 8 percent growth as predicted earlier as increasing fuel prices and economic slowdown is reducing purchases. According to a Frankfurt-based analyst at IHS Automotive, Christoph Stuermer, after registering 34 percent hike in 2011, premium-light vehicle sales will slowdown to 24 percent.
As per analyst estimates, BMW, Daimler and Audi will register less profit in terms of earning before depreciation, taxes, interest, and amortization. According to Credit Suisse Group AG, average profit margin for three premium car makers will come down by 4 percentage points by 2014 from the present 16 percent to 18 percent. In a telephonic interview, Arndt Ellinghorst, London-based analyst at Credit Suisse, said, "The margins they currently achieve in China are not sustainable."
IHS predicts that demands for luxury cars in Europe will fall to 2 percent at 3.07 million units. Due to reduction in unemployment and increase in consumer confidence, higher sales are forecasted by Mercedes-Benz, Toyota Motor Corp.'s Lexus and BMW.
Referring to Mercedes-Benz's 2.59 million-yuan luxury sedan, salesman Jack Ren "A buyer of a S600 sedan last year would have to pay an additional 200,000 yuan ($31,600) to hasten delivery of his car," He added, "This year, the same car is selling for 200,000 yuan less."
At a Mercedes distributor in the southern Chinese city of Shenzhen, Renfu Teli Motor Co., if female customers buy a car in March, she can get as much as 20 percent off on Chanel, Louis Vuitton and Hermes bags. In January, free car insurance, iPhones and maintenance are offered by BMW dealers.
In China, Mercedes, Audi, and BMW contribute towards 70 percent of luxury-car sales in China. The German car makers are not the only ones to attract the rich people of China; even General Motors aims to increase the supply of its SUVs and Cadillac. To reduce the impact of German manufacturer, Toyota Motor Corp.'s Lexus, Tata Motors Ltd.'s Jaguar Land Rover, and Nissan Motor Co.'s Infiniti are also expanding in China.
Xiong Chuanlin, vice secretary- general of China Association of Automobile Manufacturers, said, "High-end cars won't grow at the same explosive pace, but they will still grow," He added, "Chinese consumers have a fondness for luxury."
According to him, luxury automakers must understand that discounts do not make the shine of their brands dull. Xiong Chuanlin, said, "You'd rather lose a customer because of pricing because that is part of your premium heritage: people can't afford it." He added, "Protecting your brand should be the most important thing."
