Sales of marques such as Mercedes are growing by as much as 50 per cent as Chinese entrepreneurs get richer.
Demand soars in China for luxury cars
BEIJING // The small table in the back of the special edition 2011 Lincoln Navigator is polished mahogany. The seats are soft white leather. The price tag is more than Dh900,000.
The second of the three rows of seats has been removed, turning the rear of the SUV into a room of its own, perfect perhaps for one of China's nouveau riche who likes to be driven rather than to drive.
If even this does not offer enough leg room in the back, there is a stretched version for a cool 1.8 million yuan (Dh1m).
"There are a lot of people who want luxury cars because the people are getting richer and richer. The market is still growing," said Lu Jialong, 24, a salesman at Beijing Jingao Luxury Cars Plaza, where the supersized SUVs are on sale.
The demand for luxury cars in China, the world's biggest market for vehicles, is growing at an unprecedented pace.
In 2009, the German manufacturer BMW sold 90,563 cars in China, little more than a third as many as in the United States, 241,727.
Yet in the first six months of this year, 121,614 BMWs were bought in China, putting the company on course to sell more cars there than in the US for the first time.
No wonder that in Shenyang, a city north-east of Beijing, the company is building a factory which will ultimately be able to produce 400,000 cars a year.
Fellow German carmaker Audi, the sales leader in China's luxury market, saw the country become its biggest market this year and plans to double manufacturing capacity in the country by 2015. Mercedes, enjoying 50 per cent-plus sales increases so far in 2011, against 5.3 per cent growth in the Chinese car market overall, is also scrabbling to expand local manufacturing capacity to cement its place as the country's third-biggest luxury car marque.
While many of those driving premium cars are established managers or executives, they have been joined by young entrepreneurs.
"If you have a luxury car, it proves you have confidence and social status. Especially in business, you have to have a luxury car," said Feng Yao, 25, who works in property and drives a black E-Class Mercedes.
According to John Zeng, director of Asia Vehicle Forecasting for the research company JD Power and Associates in Shanghai, sales of luxury cars are growing because well-off residents in coastal regions, who bought their first cars five or six years ago, are upgrading.
He said they find luxury cars more affordable than before. No wonder, considering that by the end of last year, nearly one million Chinese were worth more than 10 million yuan. This is according to the Hurun Wealth Report, an annual document produced by Hurun Report, a Chinese company that produces magazines and events "targeted at China's high net worth individuals".
"It's not only luxury cars but luxury items like watches, bags or accessories, like Louis Vuitton or Prada, all these luxury brands have tremendous growth in China," Mr Zeng said.
"In the coastal regions, the rich families become more and more eager to have these luxury items."
In rural areas, where per capita incomes averaged 5,919 yuan last year, according to the National Bureau of Statistics, a new BMW or a Gucci handbag largely remains out of reach.
Sales of luxury cars in China will grow twice as fast as for mainstream cars in the coming years, Mr Zeng predicts, because premium brands still secure a lower proportion of sales than in many developed countries.
In Beijing, the main cluster of upmarket car dealerships lies a short walk east of the Forbidden City. There is a Lamborghini showroom with five low-slung sports cars, the vehicles alternating between orange and white. Ferraris lure buyers on the opposite side of the road, while nearby, Rolls-Royce has half a dozen vehicles, two with "sold" labels on the dashboard, in its showroom on the ground floor of a five-star hotel.
If standard production cars are not enough, several dealerships sell customised cars, among them AC Schnitzer, which has upgraded BMWs costing up to 2 million yuan. In an average month, according to Tony Xiang, a sales adviser, four to five vehicles are sold.
He said it is often 30 to 40-year-old businessmen who splash out on ultra-expensive cars. "They want something different. If someone wants a luxury car, they don't want the same as everybody else. They want to show their own character and way of life in their car. It's just like in America," Mr Xiang said.