Willing to pay a premium

China is in hot pursuit of the US, and it will soon be ready to overtake

China is expected to become the world's largest premium car market, overtaking the United States on its way to selling more than 2.3 million high-end cars by 2016, according to a McKinsey & Co report.

According to the March 4 report, the market for premium cars in China grew 36 percent a year over the past decade. During the same period, the Chinese passenger vehicle market expanded 26 percent annually.

Sales of premium cars in China reached 1.25 million vehicles last year, making it the world's second biggest market after the US.

With Chinese consumers purchasing more high-end cars, many automakers from around the world, especially from Europe, are expanding their premium car markets to China.

Europe has especially been hit hard by the global economic recession. Only 12 millions cars were sold in Europe last year, the lowest since 1995. The rate of cars sold in Europe has been dropping annually by 8.2 percent.

According to Xinhua News Agency, the number of cars sold in Europe in February was 10.5 percent lower compared to the same period last year.

"Our main focus will be to expand exports to booming markets such as China, which currently has a high demand for high-end cars," James Muir, CEO of Seat, a Spanish automobile manufacturer said at the 83th Geneva Auto Show on March 5.

Seat plans to introduce and develop its Leon series in China, a line of small family cars, with culture-specific designs to impress the Chinese market.

In its report, McKinsey highlighted 23 brands as premium. Among them are Acura, Aston Martin, Audi, Bentley and BMW. Its report predicts China's premium car market will grow 12 percent a year and sell 3 million premium cars a year by 2020.

One-quarter of the 1,200 premium car buyers in China who took part in McKinsey's survey says they are willing to spend more on a car because they were confident in their careers and business prospects.

"The number of premium car buyers in China who are optimistic about their future is increasing rapidly," says Sha Sha, a partner at McKinsey's division in Shanghai and co-author of the report.

Eighty percent of China's premium car owners are considered "affluent", according to the report. They are defined as those with annual disposable household income of more than 200,000 yuan ($32,100; 24,680 euros).

By 2020, there will be 23 million affluent urban households. The number of affluent urban families will grow at a rate of 16 percent in China and make up 7 percent of the country's population-roughly equal to the total number of households in Britain today-by that time.

Thirty percent of the respondents say how a car reflected their social status was the main reason to upgrade to a premium car, while 27 percent cited "self-indulgence".

There was also a new wrinkle to the trend of buying high-end cars. The report says a new entry-level group of potential premium car consumers, called the "new mainstream", has emerged.

The new demographic consists of households with annual disposable income of 100,000 yuan to 200,000 yuan.

"The new mainstream households care more about style, brand and outward appearance than more affluent consumers, who tend to value technology and vehicle performance," Sha says.

Zheng Shengtao, chairman of the printing and packaging company Zhejiang Sunlead Group Ltd in Wenzhou, owns a stable of luxury cars, including a Rolls-Royce and a Bentley.

"Owning a car like Rolls-Royce is a symbol of wealth and reputation for most businessmen," says Zheng, who added that his cars are as important as his clothes and accessories.

Yu Kan, 27, who works in his family business in Shanghai, says he bought his BMW two years ago because of the engine's power.

"Most young buyers of branded cars like me are keen to get the best possible performance, and the good looks and modern style of the vehicles are also very important," Yu says.

The report says 300 cities would have consumers with sufficient household incomes to buy premium cars by 2020, up from about 100 cities today.

To meet the growing demand for quality brands, European auto manufacturers are introducing personalized products to the premium car market in China.

"The market for Citroen outside Europe is expected to be 50 percent of the global market, with a larger growth of consumers in developing countries, such as China and Brazil, by 2015, " said Philippe Varin, PSA Peugeot Citroen CEO, at the Geneva Auto Show.

Citroen plans to sell cars made to meet the demands of Chinese consumers. Varin added that new factories in China would be opened to expand production lines under a cooperation deal with two Chinese partners, Chang'an Automobile Group and Dongfeng Motor Group.

Paul Gao, another partner at McKinsey's division in Shanghai and co-author of the report, says that "as consumer preferences continue to diversify, premium automakers may need to further localize vehicle specifications, and even nurture indigenous Chinese premium brands with their joint venture partners to offer China-specific car models at appropriate prices".

yuran@chinadaily.com.cn

(China Daily 03/15/2013 page16)