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Luxury Automakers Rush To Capture Chinese Demand

"We Chinese like the show of grandeur," said a coal mine owner, who owns four luxury cars. "Finally we've got some money, and we want to show it off."

In this April 24, 2012 file photo, a woman walks out from a Mercedes-Benz CLS-350L during the Beijing International Automotive Exhibition in Beijing, China. Luxury automakers from Mercedes-Benz to Cadillac to Japan's Infiniti see China's newly rich buyers as a big part of their future. They are designing models for Chinese tastes and shifting some production to this country as its rapid growth mints tens of thousands of new millionaires. (AP Photo/ Vincent Thian, File)

BEIJING (AP) β€” Han Zhongping, a 38-year-old coal mine owner who has four luxury cars and is in the market for another, looked at BMW's latest sedans at this week's Beijing auto show and said what he wants is simple.

"The most expensive is the best," said Han, from the northwestern town of Yulin in China's coal fields. His stable of cars already includes models from BMW and Mercedes-Benz, all bought for cash.

"We Chinese like the show of grandeur," he said. "Finally we've got some money, and we want to show it off."

Luxury automakers from Mercedes-Benz to Cadillac to Japan's Infiniti see China's newly rich buyers like Han as a big part of their future. They are designing models for Chinese tastes and shifting some production to this country as its rapid growth mints tens of thousands of new millionaires.

Luxury sales are buoyant despite a slump in China's car market. They surged 21 percent in the first quarter over a year ago, according to JD Power & Associates, while the overall market grew just 2 percent. Analysts foresee strong growth for years to come, with luxury sales rising from 1 million vehicles last year to as much as 3 million by 2025.

"People really want to show off their social status," said Lin Huaibin, chief China auto forecaster for IHS Automotive.

Automakers are launching models with bigger rear seats for Chinese buyers who ride in back and have drivers β€” or want to pamper their passengers. Audi's A6L has rear-seat teacup warmers and massage units. Rear passengers in BMW AG's 3-series can push a button to move the front passenger seat for still more legroom.

Manufacturers are shifting production to China to avoid high import duties or ramping up output at existing operations.

General Motors Co.'s Cadillac and Nissan Motor Co.'s Infiniti announced plans this week for their first China factories, joining German rivals that have made cars here for much of the past decade. BMW is adding a second factory and a design studio.

Demand has been fueled by rapid economic growth that rebounded quickly from the 2008 global crisis. China's economy grew by 8.1 percent in the first quarter β€” its slowest in three years but far ahead of the United States, Europe and Japan.

"People are getting wealthier," said Jacob George, managing director of J.D. Power Asia Pacific. "And there's more of a tendency to buy luxury in China."

Audi, China's best-selling premium brand, said sales rose 37 percent last year to 313,000 cars. Daimler AG's Mercedes-Benz Cars said first quarter sales of its S-class in China soared 74 percent.

A high-status car also can be a business tool in brand-conscious China.

Zhang Yongxiang, a Beijing entrepreneur who operates a laundry service, wants to trade up from a Volkswagen Passat, a step that is getting easier for Chinese buyers as manufacturers roll out lower-priced models that compete with mass-market sedans.

"It will help my business," said Zhang, 42, who was looking at a Mercedez C-class model at the auto show.

"Your clients won't say anything to you, but they look at your car and judge," Zhang said. "Some companies won't give you a chance if you don't have a respectable car."

Li Yansong, a 34-year-old who works in advertising, wants a car that can impress. One possibility is an Audi, which has a close association with the government after having been widely used by Chinese officials since the 1990s.

"Because the public think it is a government car, it helps," said Li.

Auto China 2012 was a showcase for companies from global brands to Italian producers of handbuilt sports cars that want a piece of China's luxury market.

Mercedes-Benz's Smart unit is marketing a "Dragon Edition" of its two-seat runabout made in a limited set of 700 vehicles with red and gold decorations and the Chinese character for "dragon" on the side. In the mini-luxury end of the market, Italy's Fiat SpA showed a version of its 500 compact styled by fashion house Gucci.

Lamborghini's latest SUV "Urus" is on display at the Beijing International Automotive Exhibition in Beijing, China.

China's Geely Holding Group displayed its Englon SC7-RS concept car, which has the high profile and rounded edges of a Bentley or Rolls-Royce. Geely says it might be sold in two to three years.

Rolls-Royce, owned by BMW, premiered an extended wheelbase version of its own Phantom II for Chinesebuyers.

"They want to travel highly relaxed," said Rolls-Royce's chief executive, Torsten Mueller-Oetvoes. "There is no better way to travel than in a Rolls-Royce."

Rolls-Royce also has introduced a "Year of the Dragon" collection to commemorate the current year in theChinese zodiac with dragon-themed styling.

Even buyers who drive their own cars want more lavish rear seats to pamper parents or business clients.

"We have mirrors for the rear seat β€” only in China. We have individual reading lights β€” only in China," said Christian Schulte, product manager for BMW's 5-series, which sells for 428,600-797,600 yuan ($68,000-$126,600), depending on options.

Besides rear-seat massage units, Audi's A6L β€” "L'' for long wheelbase β€” has an air filtration system, a 220-voltage outlet for a laptop computer and a USB socket. The A6L starts at 383,000 yuan ($60,800) and go up to 742,600 yuan ($118,000).

Cadillac plans to design a global model, the XTS sedan, based on Chinese needs, said Joseph Liu, executive vice president of Shanghai GM Corp, a joint venture between GM and state-owned Shanghai Automotive Industry Corp.

The new XTS will debut in North America in the third quarter and go on sale in China by the end of the year. GM says the XTS will be produced in China.

"It will be the first Cadillac that will be designed for China and made in China," Liu said. "It's a truly global car."

Still, some luxury automakers say changing too much to suit Chinese tastes might hurt them. Many customers want a look that says "Made in Germany" or "Made in Italy." Brands are careful not to tamper with that.

"We are always asking our markets what their input is, and there, of course, China today has a very strong voice β€” which does not mean that we want to make Chinese cars," said Daimler chairman Dieter Zetsche.

"I do believe that our customers mainly are buying our vehicles because we are a German brand and because of our appearance and our technology."

Despite booming demand, Cadillac and Japan luxury brands Inifiti, Lexus and Acura are latecomers to China and will face tough competition from established German brands, said Lin of IHS Automotive.

Buyers are accustomed to sleeker European styles and might be put off by Cadillac's sharp edges and muscular look, Lin said.

"If I'm a Chinese buyer ... the German premium car's brand image speaks more strongly for my social status," Lin said. "I think Cadillac, as well as Japanese brands, they all lag behind."


AP Business Writer Joe McDonald contributed.