Bubble Burst: BMW, Mercedes, Audi Watch Profits Fall in China
What goes up…well, you know the rest.
Luxury automakers are watching profits fall in the once hot Chinese car market. According to Bloomberg, reasons include a slowing Chinese economy, rising cost of fuel, and simple competition.
The current major players in the premium and luxury car market include Audi, BMW, and Mercedes-Benz. Combined, the three German automaker account for more than 70-percent of luxury car sales in the country, with Audi having the largest share of the pie at more than 30-percent. The remaining 20-percent or of the luxury car segment is split among non-German brands like Cadillac (General Motors), Infiniti (Nissan), Jaguar/Land Rover (Tata), and Lexus (Toyota).
Chinese car sales were expected to grow around 8-percent this year. Now economists think even a 5-percent increase will be "difficult." Profitability will drop as well from the current 16 to 18-percent to the world average of 10 to 12-percent.
The automakers, of course, won't give up without a fight. Audi and BMW in China have slashed prices up to 20-percent; Mercedes dealerships is offering car buyers coupons for Chanel and Louis Vuitton products; and Volvo dealers are offering free trips to Hong Kong. The automakers are more vague about their sales strategies when pressed: BMW China reps say it has a "stable price" strategy for its operations Audi outright says it has no "substantial" incentive policy for the country. And rightly so. Too many discounts can erode a brand's reputation...just ask Cadillac and Lincoln.
Source: Bloomberg
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