As China’s mainstream car market shows increasing signs of little or no growth this year, General Motors (NYSE: GM), one of the industry’s top players, is finally noticing the luxury segment still has plenty of growth potential by making a very late move into the space with its upscale Cadillac brand. Now the big question will be whether luxury sales are still so strong in the year or 2 it will take GM to start making Cadillacs in China, especially as Beijing takes moves to restrict luxury car buying by government organizations. (previous post) The luxury segment’s big potential has been quite obvious for a while now, as brands like BMW (Frankfurt: BMW) and Volkswagen’s (Frankfurt: VOWG) Audi have seen strong double-digit sales gains of 30 percent or more for the last year, even as the broader market contracted 3.4 percent in the first quarter of this year. That reality is what’s driving GM to finally make a serious initiative for Cadillac, with plans to start manufacturing 3 models in China within a year, according to a foreign media report, adding GM will announce more details at the Beijing Auto Show next month. (English article) GM has sold Cadillacs in China for a while now, but all have been imported, meaning they carry large import taxes and thus are far less competitive than models from the German brands that have all invested heavily in China factories. GM’s latest move looks like a smart one, even though it’s a bit late, since Cadillac already enjoys a relatively strong reputation as a solid luxury brand among average Chinese consumers. That’s an important factor, since the Cadillac brand in GM’s home US market has always been handicapped by its image as a brand for older people. As an American living in China, I have been surprised how GM has built Buick — also considered an older, stodgier brand in the US — into its top selling nameplate in China, where the brand enjoys a very mainstream, quality reputation. There’s no reason GM can’t take advantage of its extensive sales and distribution networks and marketing muscle to do the same for Cadillac, quickly building it into a competitive major luxury brand for the China market. Of course the big risk is that the luxury market will also slow down by the time GM starts mass producing Cadillacs in China, though there should still be plenty of room for growth. Meantime, foreign media are reporting that France’s Renault (Paris: RENA) is also finally discovering China, with plans to form a joint venture with domestic car maker Dongfeng (HKEx: 489). (English article) Apparently the 2 sides are racing to finalize their deal before a deadline that will make such new investments more difficult. I suppose I should commend Renault for finally discovering China and rushing to invest there before the looming deadline. Still, I have to wonder why such a large global brand has taken so long to discover China, which passed the US a couple of years ago to become the world’s largest auto market, and would say the brand’s late arrival will severely limit its chances for success.
Bottom line: GM’s plan to produce Cadillacs in China looks like a smart move to tap the booming luxury car market, drawing on its existing networks to quickly catch up to established German rivals.
Related postings 相关文章:
◙ China Puts the Brakes on Luxury Cars 中国公务车拟告别豪华车
◙ Luxury Cars Zoom, But Who Profits?
◙ Cars: US, Germany Clobber Japan, Domestic Rivals 美德汽车在华完胜日本和中国车商
I hate to be overly pessimistic, but I have serious doubts about the future of a newly announced joint venture between fading domestic auto giant Chery and luxury car maker Jaguar Land Rover. More specifically, I am quite skeptical that this new tie-up will ever get the necessary approvals from Chinese regulators, which must approve all such major new investments. (
A new plan being floated by the central government could put the brakes on soaring sales growth for luxury brands like Audi (Frankfurt: VOWG) and BMW (Frankfurt: BMW), who have so far managed to defy a broader downturn for China’s auto sector. The shift would come as a huge blow for those names just as most are investing billions of dollars to increase their capacity to cater to China’s huge thirst for luxury brands, though I expect the final outcome will be a compromise that allows some government sales to continue. Let’s look at the facts first, which have the Ministry of Information and Industry Technology (MIIT) reportedly proposing a plan that would limit all government agencies to buying only domestic brands, in an attempt to support struggling homegrown players like Dongfeng (Shanghai: 600006) and Geely (HKEx: 175) that have steadily been losing market share to the more aggressive and resource-rich foreign names as growth sharply slows in China’s auto market. (
The upstart Chery, one of China’s only major car makers without a foreign partner, may be close to a tie up with Jaguar Land Rover, in a deal that looks both interesting but also questionable to me in terms of chances for success. Foreign media are reporting the 2 sides would join forces to manufacture cars in China, presumably Jaguars and Land Rovers, to cater to the market’s strong appetite for luxury cars. From a demand perspective, such a tie-up certainly makes sense. Luxury car makers like BMW, Audi and even the stodgy Rolls Royce all saw their unit sales rise in the healthy double digits last year, even as the broader market only managed to eke out a small gain, as newly affluent Chinese clamored for the latest status symbols to show off their wealth. I just returned from a trip to the provinces myself during the Chinese new year holiday, and was surprised to see an Alfa Romeo driving down a dusty partially paved road in a very small town, testifying to the popularity of luxury cars just about anywhere people have money. Chery also sorely needs a foreign partner to help it weather the coming downturn in China’s auto market, and has come close to tie-ups at least twice only to see them fall through. All that said, I’m not completely convinced that Jaguar Land Rover, which is owned by India’s Tata Motors, is the best partner for Chery. Jaguar Land Rover was struggling when Tata bought it from Ford in 2008. Perhaps performance has improved since then, but I suspect the brands are still struggling or perhaps just breaking even. What’s more, Chery is famous for its smaller, cute QQ cars, though more recently it has also gotten into bigger sedans. But it has no experience with luxury cars, and I’m not sure if Jaguar Land Rover is the right company to enter that area with. At the end of the day, I see a rough road ahead for this joint venture, though perhaps it will be like Chery’s other foreign tie-ups and stall out before it ever starts making cars.
2011 sales data for 2011 has been trickling out for the past week from the various car makers in China, showing US and German names made big gains last year at the expense of Japanese and domestic rivals, who could face a continued uphill battle in the coming year. General Motors‘ (NYSE: GM) China sales rose 8.3 percent last year to a record 2.55 million vehicles, while Ford (NYSE: F), a later arrival to the market, said its sales grew 7 percent to 519,390 units, according to company statements. (
In what should come as a big surprise to no one, China has singled out cars imported from the US for special duties after the US took similar action against Chinese-made tires in response to an anti-dumping complaint. This kind of tit-for-tat punitive tariff is relatively common and usually doesn’t do much damage as the amount of product affected is small, but in this case it provides some sobering insight over what could happen if another looming trade war involving solar cells escalates. In this latest instance, China will slap extra duties of up to 13 percent on US-made cars from GM (NYSE: GM) and Chrysler, and will even impose smaller punitive duties on cars made in the US by German auto makers like BMW (Frankfurt: BMW) and Daimler (Frankfurt: DAI). (
China’s formerly red-hot auto market looks set to stall this year, but you would never know that from looking at luxury car sales. The only problem from a domestic investor’s point of view is that the market is almost completely monopolized by foreign firms, Germans in particular. The country’s 3 top luxury car sellers, Volkswagen’s (Frankfurt: VOWG) Audi, BMW (Frankfurt: BMW) and Mercedes-Benz (Frankfurt: DAI) all saw their China sales rise 30 percent or more in the first 10 months of this year. (
The rapid slowdown in China’s auto sales has spread to the higher-end of the market, boding poorly for foreign names like Volkswagen’s (Frankfurt: VOWG) Audi brand and BMW (Frankfurt: BMW), which have invested heavily in the market on a bet that pricier cars were less vulnerable to industry downturns than more mainstream models. After two turbo-charged years of growth that saw Chinese car sales jump on strong buying incentives from Beijing, growth in the market has suddenly disappeared as incentives ended and the central government takes other tightening steps to cool the overheated economy. Makers of high-end products, such as luxury bags, homes and cars, love to say how their products are more immune to economic downturns than mainstream goods, even though the reality is that the suffering is usually just slightly delayed for these higher-end products. But even luxury cars appear to already be suffering in the current car slowdown, with foreign media reporting that sellers of premium brands are now offering discounts of 16-20 percent to maintain sales. Those discounts look similar to ones being offered by more mainstream brands such as VW and SAIC (Shanghai: 600104), as companies lower prices to try and offset cooling demand. I previously said that Chinese car makers with major foreign partners are best positioned to survive the current downturn, which is bad news for names like Chery and BYD (HKEx: 1211; Shenzhen: 002594), which lack such partners that have the resources to weather such slowdowns. Chery has received a setback on that front, with Japanese media reporting the company’s plan to produce Subaru-branded vehicles in a new joint venture with Fuji Heavy Industries (Tokyo: 7270) has been rejected by China’s state planner because the company’s major shareholder, Toyota (Tokyo: 7203), already has 2 joint ventures in China, the maximum allowed under Chinese law. (
