The sharp decline in fortunes hitting global volume car brands in China is starting to be repeated among premium brands, including Audi, BMW, Jaguar, Land Rover, Mercedes-Benz and Porsche.
Premiums brands typically derive a much greater share of their overall sales from the world’s largest market than than volume players do – more than a third of them in the case of Audi.
Until recently, they were relatively insulated from the brutal price war being waged by ever-improving Chinese brands fighting to capture market share. Brand power was the protective insulating material.
However, their sales are skidding downward this year, sending a shiver through boardrooms as executives work out whether this is a blip attributable to the overall lower consumer confidence in China or the start of a longer downward trend.
In early August, Volkswagen Group and Porsche CEO Oliver Blume spoke of a “very weak China luxury market” after the German firm's sales dropped 33% there during the first half of the year, dropping China from its top market to its third, behind Europe and North America.
Porsche blamed the “ongoing tense economic situation in the Chinese market and the focus on value-based sales” (ie discounting and price-cutting) in its financial report on the drop.
The Volkswagen Group as a whole, including Audi, saw its profits in China drop 30% to €800 million in the first half as sales fell 7.3%.
Audi’s sales weren’t as badly hit, with sales down just 2% in the first half, but its China profits were down 26%, indicating the German brand was either selling fewer high-profit models or having to discount to keep sales buoyant.
JLR was another hit by a softening of demand, with first half sales down 7.3%. That meant China is no longer the British firm's biggest market globally, replaced by the US.
“We are paying close attention to China,” CFO Richard Molyneux told analysts on its second-quarter earnings call. “There are certainly signals that demand is not at the level that we would like to see it going forward.”
BMW meanwhile saw its sales in China fall 4.3% in the first half, despite the market overall actually growing by 3.4% in the same period.
Mercedes was worse hit, with sales down 9%. The blame was partly due to “fierce competition in entry [the GLA etc] and to a certain extent also in core [GLC etc]”, CFO Harold Wilhelm told analysts on its second-quarter earnings call. “The market situation in the premium and luxury segment in China remained weak.”
Premium brands are fairly certain the problem mostly lies with Chinese consumers being less willing to spend amid wider economic issues, including a collapse in property values.
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