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Demand for luxury cars peaked?

The featured story about a price war among foreign luxury brands in China published in our e-newsletter CBU-Auto indicates a possible turning point for their manufacturers and importers, despite the fact that China has become the largest market for a growing number of the world’s leading luxury brands.

With China’s national economy cooling off, automobile sales have been slowing down since last year. Compared to 2010, annual sales growth was down to an unprecedented 2.5 percent in 2011 and the market continued to slide into the negative in the first quarter of 2012.

But because the impact of a slowed economy has had a belated impact on sales of luxury cars, 2011 was the best year for luxury brands in both volume and profit, which prompted many players to further invest in expanding capacity and dealerships.

Market development in recent months seems to be much less than expected due to a number of factors in addition to a slowed economy.

The increased excise tax on large-displacement vehicles, rising gasoline price, selling off luxury cars by rich entrepreneurs caught in financial quagmire, social resentment on fatal traffic incidents involving luxury car drivers, and the government’s new procurement standards for official fleets are having a real impact on market demand.

Moreover, local independent carmakers such as FAW Car, Shanghai Auto, BAIC, Chery, Geely, JAC, BYD, etc., have all geared up to launch high-level sedans to compete for government procurement. Many of them are displaying their new luxury models at April’s Auto China 2012. While none of them would pose any major threat to global luxury brands, the new rules of government procurement, if implemented, are expected to have a significant impact on the behavior of businessmen and ordinary consumers in their choice of cars.

There is no doubt that given the market size as well as the continued growth of the economy, China may become the largest market for every luxury car brand in the world. But the total demand for foreign luxury cars may have peaked.

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