2011 BMW 7-Series
In the market for a new car? Maybe something in the luxury class? You could cruise down to your local showroom and haggle for a few hours, but bargain-hunters know that the real deals these days are in China. According to Bloomberg, Chinese shoppers are finding unprecedented discounts on premium vehicles, and the savings are expected to get bigger in the near future.
Luxury rides like the Audi A8L, BMW 7-Series, and Mercedes-Benz S300, now sell for 75% to 80% of their sticker prices at dealerships across China. And as if that weren't enough to lure high-end customers, dealers are adding other incentives, too, like free iPhones, discounts on Chanel handbags, and complimentary car insurance. Volvo has even doled out trips to Hong Kong for anyone willing to purchase a C30.
This isn't exactly music to the Chinese goverment's all-hearing ears. As most folks learn in Econ 101, prices correlate with demand. That's why U.S. auto shoppers watched incentives slip away after the Tohoku earthquake and tsunami last March, when some Japanese cars were in short supply. We saw the same trend last fall, as America's demand for cars began ramping up.
Not so long ago, China's auto market had been thought to be far more robust than ours. In 2009, while the rest of the world was mired in financial meltdown, China's auto sales grew a stunning 45%. Admittedly, some of that was spurred by government incentives, but the majority of demand was driven by China's emerging middle and upper classes.
Analysts had initially predicted that China's auto sales would increase by a far more modest 8% in 2012. Now, they're not entirely sure that dealers will hit the 5% mark.
So, is this the end of China's boom?
Not even close. While China's car market as a whole may struggle to stay in the black, luxury automakers are still poised to make double-digit gains. Mercedes and the like won't see 34% growth like they did in 2011, but 24% is entirely reasonable.
Thanks to big incentives, those companies won't be as profitable as they might've been, and as a result, their stock prices have fallen in recent days. But China's auto market is still miles from stagnation.