Luxury car market drives China to new highs

South China Morning Post - It is easy to scoff at affluent mainlanders buying luxury cars to show off. But it will not stop them from going for the latest products off the assembly line or chasing premium marques such as BMW and Mercedes.

Rich households' increasing demand for upgrading to a premium car has turned out to be a major growth driver for big-name brands that gravitate to China, which is expected to surpass the United States to become the world's largest luxury car market in 2016, according to global management consultancy McKinsey.

Already the world's largest car market, China is second only to the US in the premium segment, with sales of 1.25 million units last year. However, as more well-to-do mainlanders buy premium cars in self-indulgent displays of social status, China is likely to report sales of 2.25 million upmarket passenger vehicles in 2016, leapfrogging the US.

The mainland's premium car segment will grow at an annualised rate of 12 per cent until 2020, exceeding an estimated pace of 8 per cent for the overall market, McKinsey said in a report. By 2020, sales of premium cars would reach 3 million units, it said.

McKinsey defines the premium segment as brands ranging from Mini, Audi and Cadillac to Ferrari and Aston Martin, with each vehicle costing between 200,000 yuan (HK$249,300) and 1.2 million yuan.

"We found that more than 80 per cent of respondents were standing firm, insisting they would buy a premium car in the coming years, " said Sha Sha, a McKinsey partner. "Overall, the upward trend is irreversible."

While the mainland's anti-graft campaign would affect sales of super-luxury cars, she added, the rising income of affluent urban households would ensure that China could become the crown jewel for the world's manufacturers of premium cars.

McKinsey forecasts that by 2020 there will be 23 million affluent urban households on the mainland with annual disposable incomes of more than 200,000 yuan.

Based on a survey of 1,200 Chinese consumers, it found that "buying a car" was one of the top three family spending priorities, alongside "buying an apartment" and "paying for children's education".

Many well-paid mainlanders and self-made millionaires view a premium car as their business card for credibility and an affirmation of social status.

"Cars are seen as an important personal statement not only to display status and gain social recognition, but also to self-indulge and act as a source of fun in life," McKinsey said in the report.

Daniel Dong, an entrepreneur in Shanghai, said he was comfortable displaying his wealth through his Jaguar car.

"I made my fortune through my own hard work and I think I deserve to drive a better car than other ordinary people," Dong said. "It's a reward for my hard work and business success."

There have been mounting worries that Beijing's efforts to fight corruption and a deteriorating business environment could drag down the growth of the car market. Sales of passenger cars grew 2.45 per cent in 2011 before rising 4.3 per cent last year, compared with 32 per cent in 2010.

But McKinsey said premium car buyers were optimistic. A quarter of respondents to its survey said they had a high degree of confidence in their career and business prospects and planned to spend more lavishly.