Auto Industry

Feeling sporty

Luxury car sales slump, but domestic SUVs speed out of showrooms

Bentley CEO Duerheimer presents Bentley Bentayga during the Volkswagen group night ahead of the Frankfurt Motor Show (IAA) in Frankfurt

Bentayga: solid gold prospects?

When Henry Royce was designing his first vehicle, he was advised by a friend to create “a reliable car at a low price”. He rejected the idea, opting to produce “the best motor car in the world regardless of cost”, according to company folklore.

That same Rolls-Royce spare-no-expense strategy appealed to Chinese tycoons – so much so that by 2014 China had become the firm’s second biggest market.

However, that ranking slipped last year, with Rolls-Royce’s China sales plummeting 54%. Sales for Bentley also dropped 36.9%; Jaguar Land Rover 24%; and even Audi – Volkswagen’s perennial top peformer – sold 1.4% fewer vehicles (the first decline since VW started in China 26 years ago).

Rolls-Royce’s chief executive Warren East attributed the drop to the ongoing crackdown on corruption and wasteful spending, drawing comparison with the declining fortunes of other luxury goods such as watches, China Business Journal reports.

Yale Zhang of consultancy firm Automotive Foresight says that flaunting one’s wealth has become less appealing too. “It’s become meaningless to spend Rmb10 million ($1.52 million) or Rmb20 million on a car,” he told China Daily.

Growth in car sales in general decelerated last year in China, dropping to a three-year low of 4.7% (as recently as 2013 revenues rose 13.9%).

But sales of sports utility vehicles (SUVs) raced ahead of the average, accelerating a little over 50%. Customer demand has been shifting away from sedans towards smaller SUVs, many of which are made by domestic producers. (WiC first noticed the surge in SUV sales in issue 148).

Hebei-based Great Wall Motors is the market leader, selling 699,000 SUVs last year, and Nikkei Asian Review reports that seven of the 10 top-selling SUV brands last year were homegrown (Chinese brands haven’t competed as well against foreign ones in most other segments of the market; see WiC242). Much of that success is based on lower prices, with Chinese SUVs often costing half as much as their international competitors.

Some of that impetus may be lost by the end of the year, when a tax break on cars with engines smaller than 1.6 litres comes to an end. Moreover, a researcher with Mizuho Bank told Nikkei Asian Review that some of the local carmakers could be risking their reputations by “sourcing low-priced parts from local suppliers that foreign automakers might avoid due to quality concerns”.

In the longer term, this low-cost strategy might backfire, especially as the more trusted foreign brands introduce more SUV models of their own.

Meanwhile even in the higher-end of the market there is a growing appetite to satisfy China’s taste for SUVs. Bentley has just launched the first SUV model in its history, the Bentayga, and Rolls-Royce will introduce one of its own in 2018. Fiat delayed plans to launch a new Maserati sports car model last year, citing the slowdown in the Chinese market as a major factor. But it says that the moratorium has allowed it to focus on its new SUV, due to be showcased in April at the Beijing Auto Show, reports.

The China Association of Automobile Manufacturers expects SUV sales to grow a further 36% this year, well above the 6% growth predicted for car sales in general.

But the SUV strategy may not be appropriate for all the luxury carmakers, it seems. Asked this month how he was going to address the slowdown in sales in the Chinese market, Fiat boss Sergio Marchionne ruled out an SUV makeover for another of his marques: Ferrari. “I don’t think it’s going to recover this year,” said Marchionne, “but we won’t make a Ferrari SUV. You’ll have to shoot me first.”

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