How has the Chinese Economy Downturn Affected the Country’s Luxury Car Market?

China’s auto market is currently the largest in the world, despite the current economic difficulties the country is facing. Luxury car brands have seen decent growth in the market with manufacturers like Maserati growing significantly over the last 10 years. Within their first year the brand sold only 40 vehicles and now China has become the company’s 2nd largest market.

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Due to the current crackdown on corruption in the country and its slow down of economic growth, the indulgence of spending on luxury goods and cars has declined. The current level of corruption in China has sparked edicts which are dedicated to dealing with the issue and the country’s government has taken up the perspective of luxurious gifting as a means of bribing. This may have led to a decrease in the desire to showcase wealth through public displays of luxury goods.

However, these gifts are said to be part of China’s cultural tradition of Guanxi; a concept deeply rooted in China’s business relationships. It’s based on the idea of reciprocation. An understanding forged by mutual parties upon the notion that both will take into account each other’s needs in their decision making process.

Luxury commodities in China are sometimes used as currency to help nurture the reciprocation that these types of relationships are built around. This in combination with the current downturn of China’s economy is supposedly hindering the wealthy within the country from buying luxury cars.

However, it has been observed that this decrease in economic growth is not a disaster for the luxury car market in China, but they must adapt. China’s urbanisation and expansion of its middle and upper class has produced more individuals that can afford the finer things in life. Forbes writer and Chinese business expert Michael Zakkour has suggested that new growth in the Chinese market can be found in Tier 2 – 5 cities, which contains a potential 300 million luxury consumers. These consumers would be ripe for the lower end luxury car brands such as BMW and Audi who are currently among the most popular luxury car brands in China. For the higher end luxury brands such as Ferrari and Lamborghini, there has been a forecast of hope and it can be found in the nation’s youth, as observed by the IHS Automotive principal analyst in London, Namrita Chow who has stated that “there is still quite a large segment of China, the young ultrarich who want a Lamborghini or Ferrari,”.

In a counter response to the influx of economic downturn, luxury car brands have been producing discounts on their vehicles. The head of BMW Chinese chain said that “When people walk into a showroom now, with anything less than 15 percent discount they would not even consider opening their wallets.”. This may be an effort to provide Chinese consumers with a more humble means to purchase forms of luxury.

About the Author:

Adam is a freelance writer that focuses on luxury asset trends for Borro Private Finance.