Rolls-Royce targets China's really-rich

BMW's super-luxury brand is expanding sales operations in China to meet demand from the ostentatiously wealthy, as rivals such as Daimler do the same. Rolls-Royce is moving to bigger dealerships in Shanghai, Beijing, and Hong Kong, and expanding into new cities.
 
For most of the world's automakers, China is all about big numbers. The Chinese market is the biggest in Asia and the second-largest in the world, behind only the U.S. Last year the Chinese purchased 8.3 million vehicles, including 5.2 million cars, sport-utility vehicles (SUV), and mini vans. With solid growth this year, the number of cars, trucks, and other vehicles sold in China is likely to hit 9.5 million. That's why General Motors (GM), Volkswagen (VW), Toyota, and other Western and Asian automakers are targeting the country.

Colin Kelly, though, is one auto executive who lets the other guys look at the millions and millions and focuses on a much smaller number. To be precise, 106. That's how many super-luxury cars Rolls-Royce sold in China's mainland (80) and Hong Kong (26) last year. One hundred and six may not sound like a lot, but that's 10% of the BMW-owned company's worldwide sales, says Kelly, the Singapore-based Asia-Pacific regional director for Rolls-Royce Motor Cars. This year, Kelly expects Chinese sales of about 170 vehicles, putting China ahead of Britain as the second-largest market for the English-made luxury cars. (The U.S. remains No. 1.) "We have great expectations," crows Kelly.

Rolls-Royce is now building up its China operations in order to meet those expectations. The company has recently moved into bigger showrooms in Beijing and Shanghai, and last month confirmed that it is working with local partners to expand into smaller cities such as Shenzhen in the south and Hangzhou in the east. Kelly says that Rolls-Royce is also looking at other, second-tier cities "very closely."

Other luxury carmakers are looking just as closely at building their sales in China. BMW, the parent company of Rolls-Royce, enjoyed a 42% boost in China sales last year, and the German automaker is boosting Chinese manufacturing capacity by 45%, to 44,000 vehicles a year. One sign of how important China is to BMW archrival Mercedes-Benz: The Daimler unit had the world debut for its LK-Class SUV at the Beijing auto show last month. Audi, the luxury marque of Volkswagen, launched its latest SUV in Beijing, too, and sold over 100,000 vehicles in China last year.

Among the superluxury carmakers, sales are growing in the Middle Kingdom. In 2007, Fiat's Ferrari sold 180 of its sports cars in China, a 48% increase year over year. Sales for Maserati, another Fiat marque, are up, too. And former Rolls-Royce brand Bentley, now controlled by Volkswagen, sold 338 cars in China last year, a 93% jump over 2006.

The luxury automakers are finding buyers among the increasing number of super-rich Chinese. According to a 2007 report on Asia's wealthiest by CapGemini and Merrill Lynch (MER), 38% of Asia's ultra-high-net-worth individuals, or people with over $30 million in assets, are Chinese. That's 6,300 people in China who could conceivably buy a $400,000 Rolls Phantom.

And fortunately for the automakers, China's wealthy like buying showy cars. An ostentatious luxury vehicle fits the sensibility of many Chinese, says Michael Dunne, managing director of China operations for J.D. Power. "There are scattered pockets of extraordinarily concentrated wealth" in China, he says. And for those fabulously rich Chinese, one adjective to describe what they like most is 'big,'" he says. "Big projects power, wealth, affluence, and standing."

Ironically, even the high import taxes and duties is no deterrent. In China, those can double the price of a Rolls, leaving the buyer with an $800,000 hole in his or her pocket. In the U.S., says Kelly, taxes add only 15% more to the price, while in the Middle East there are no additional charges at all. But the higher cost in China makes the car that more appealing to some Chinese buyers, since one point in owning a Rolls is to demonstrate that you can afford it. "If the car is more expensive, they're more excited about it," says Shaun Rein, managing director of China Market Research Group in Shanghai, which frequently studies Chinese consumers' attitudes towards luxury goods. "They enjoy saying 'It hurts me to spend this money.' It's all about where there's added cachet."

Reaching those Chinese isn't easy, though. Until five years ago Rolls-Royce had no presence on the mainland and brand awareness wasn't high, says Kelly. So the company has focused on building relationships with China's elite by hosting cocktail parties at dealerships and other events. "One of the biggest challenges is getting face time with people who are going to buy a car," Kelly says. "People are trying to sell them a villa, a yacht. These people are getting hit on all the time."