Bubble Burst: BMW, Mercedes, Audi Watch Profits Fall in China

By Joel Arellano | March 21, 2012

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