In China, Mercedes and BMW spy Lin­coln and Cadil­lac in their rearviews

Au­tos ▶ The U.S. lux­ury mod­els aim to grab sales from Ger­man brands ▶ “Amer­i­can cars … don’t have that pre­mium im­age”

Bloomberg Businessweek (North America) - - Contents - Edited by James E. El­lis

At the en­trance to a lux­ury auto show­room in Shang­hai’s Pudong dis­trict, door­men greet po­ten­tial cus­tomers. Vis­i­tors can re­lax in a tea­room or en­joy a mas­sage be­fore check­ing out the cars’ var­i­ous col­ors and fea­tures on a 46-inch in­ter­ac­tive video screen in the deal­er­ship’s Per­son­al­iza­tion Stu­dio. All this cod­dling isn’t to ped­dle some Ger­man luxe sedan or Ital­ian sports car. This show­room, where each cus­tomer is served by at least three spe­cial­ists—from the front desk, sales, and the ser­vice de­part­ment—is for Ford’s Lin­coln brand. “Our ser­vices are of the same stan­dard as a five-star ho­tel,” says Wan Disheng, mar­ket­ing man­ager at Shang­hai Yongda Lin­coln.

Ser­vice—at-home test drives, live video­con­fer­ences with main­te­nance and re­pair staff—is a cen­tral piece of Ford’s plan to boost Lin­coln sales in China. The brand en­tered the coun­try in Oc­to­ber 2014 with only three show­rooms; by yearend 2016, there will be 60.

Mean­while, in Jan­uary, Gen­eral Mo­tors opened a Cadil­lac fac­tory in Shang­hai, its first built solely to sup­port the lux­ury brand in the coun­try. The $1.2 bil­lion plant has the ca­pac­ity to pro­duce as many as 160,000 Cad­dys a year, in­clud­ing the new $68,000 CT6, a sedan GM plans to also ex­port to the U. S.

China has be­come the world’s largest auto mar­ket, with 21.1 mil­lion cars sold last year. Lux­ury sales ac­count for only 9 per­cent of the to­tal, or 1.9 mil­lion ve­hi­cles, com­pared with 12 per­cent in the U.S. But GM China Pres­i­dent Matt Tsien says lux­ury car sales will hit 3.5 mil­lion ve­hi­cles an­nu­ally by 2020. That would make the coun­try the world’s largest lux­ury mar­ket, he says.

Main­land buy­ers have tra­di­tion­ally equated lux­ury with Ger­man name­plates. Volkswagen- owned Audi is China’s top lux­ury brand, with 30 per­cent of the high- end mar­ket in 2015; BMW is No. 2, with 25 per­cent; and Daim­ler’s Mercedes-benz line is third, with 20 per­cent.

Cadil­lac is far be­hind, tied with Chi­nese au­tomaker Geely Au­to­mo­bile Holdings’ Volvo at No. 6—they each com­manded 4 per­cent of the mar­ket last year, ac­cord­ing to Bloomberg In­tel­li­gence. Lin­coln had less than 1 per­cent. “There re­ally is a solid as­so­ci­a­tion in Chi­nese con­sumers’ minds with the pre­mium Ger­man brands,” says James Roy, as­so­ciate prin­ci­pal of China Mar­ket Re­search Group. “Amer­i­can cars are viewed as fine and good

and func­tional, but they don’t have that pre­mium im­age.”

When Lin­coln started look­ing at the Chi­nese mar­ket in 2012, “we quickly dis­cov­ered the re­tail ex­pe­ri­ence was lack­ing,” says Robert Parker, pres­i­dent of Lin­coln China. His team con­sulted with brands such as Chanel and Burberry and en­listed staff from lux­ury ho­tel op­er­a­tor Man­darin Ori­en­tal to train its sales­peo­ple in cus­tomer ser­vice. “Our fo­cus is around treat­ing peo­ple bet­ter than any­one else in the in­dus­try,” Parker says. “My di­rec­tive is to fo­cus on the con­sumer ex­pe­ri­ence, and over time the rest will fall into place.”

Pres­i­dent Xi Jin­ping’s cam­paign against cor­rup­tion and con­spic­u­ous con­sump­tion among of­fi­cials may also pro­vide an open­ing for U.S. cars. “Con­sumers are trad­ing down,” says Roy of China Mar­ket Re­search Group. “Peo­ple are not look­ing to be as ob­vi­ous or flashy with their wealth as be­fore.”

Zhu Qinglin, a fiftysome­thing ex­ec­u­tive with a state-owned power com­pany, is look­ing for a car that makes less of a state­ment. “There are too many peo­ple driv­ing BMW and Mercedes in China, and they’re too eye- catch­ing,” he says. Lin­coln “is a lux­ury car, but not very known in China. I like that it’s kind of spe­cial and low-key.”

Cadil­lac’s Shang­hai fac­tory will let the brand avoid the coun­try’s stiff auto im­port taxes, which can in­crease the cost of a for­eign-made ve­hi­cle by about 25 per­cent. Audi, BMW, and Mercedes all have lo­cal fac­to­ries. Cadil­lac could also ben­e­fit from the lo­cal pop­u­lar­ity of sis­ter brand Buick, which has been pro­duced on the main­land since 1999. “Every­body has a fa­vor­able view of GM prod­ucts in China,” says Steve Man, a Bloomberg In­tel­li­gence an­a­lyst. Ford faces a much big­ger chal­lenge try­ing to sell im­ported, heav­ily taxed Lin­colns. “Ford,” Man says, “will need to do a lot of work.” �Bruce Ein­horn, with Jing Yang and Gre­gory Turk

The bot­tom line Lin­coln and Cadil­lac have big plans in China, long a pre­serve for Ger­man lux­ury cars. A cor­rup­tion crack­down could help the U.S. brands.

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