Slump in share prices saps luxury brands
Prices for German luxury cars in China are tumbling as the country's stock market sell-off chills demand for brands that once commanded price premiums from affluent Chinese consumers.
After a fall-off in customer traffic and orders, a dozen BMW stores run by a dealer group with showrooms across China are offering increasingly steep discounts, according to the head of the chain.
He said business had already been weak, due to China's slowing economic growth, and his stores had to offer a 5 percent discount to attract sales last year.
Over the last week or two, as a stock market rout pummeled the net worth of potential buyers, many of those stores were forced to offer steeper discounts on models such as the BMW X6 SUV, according to the dealer group chief.
"The business has been slow for the last 18 months, but lately we have had to discount even more," the dealer operator said, asking for anonymity because he did not want to damage his group's relationship with BMW.
"When people walk into a showroom now, with anything less than 15 percent discount they would not even consider opening their wallets," he said.
BMW said it understood it was "necessary to support the dealers effectively in a volatile market." The company said it has reduced shipments to help dealers control inventories and took steps to manage their cash flow.
The company also offered to help dealerships establish after-sales services and sell used cars, BMW said.
Discounts and price cuts are being implemented not just among premium cars brands, but appear to have been happening broadly across China's passenger car market.
The volume-weighted average "manufacturer's suggested retail price" for all passenger cars remains relatively high in China, at around 280,000 yuan ($45,000), according to research firm JATO Dynamics.
But actual prices customers pay when buying cars have fallen steadily since 2012 to slightly less than 170,000 yuan, chiefly because of heavy discounting by dealers, according to JATO.
At Mercedes-Benz stores operated by a dealer group with nearly 200 multiple brand outlets, customer traffic at showrooms has dwindled markedly since mid-June, when the stock market slide began.
A senior manager at that dealer chain said customer traffic at some of its Mercedes stores was down last month by 20 to 30 percent compared with last year. Sales were still increasing at some stores, but it required lot more effort and often heavy discounting, he said.
A Beijing-based spokesman for Daimler AG noted its relatively strong sales growth rates in China for the first six months of 2015, when sales grew 21.6 percent. The spokesman did not elaborate.
Sales forecast cut
In the first sign that turmoil in the stock market could affect spending in the real economy, China's automakers' association last week slashed its 2015 forecast for vehicle sales growth to 3 percent.
The China Association of Automobile Manufacturers previously predicted combined sales for passenger and commercial vehicles to grow 7 percent to 25.1 million this year.
Defending the double-digit operating margins that the China car market provided just a few years ago is not easy as the economy cools to its slowest pace of growth in a quarter century. Dealers are tightening their belts to keep margins from falling further.
The BMW dealer group chief said his outlets, which employ about 200 people at each location, had put a hold on new hires. "We have not instituted pay cuts, but we have actually frozen salary increases as well," he said.
The dealer group chief also was trying to persuade the German brand to lower the bar for bonuses and rebates -- a primary source of profitability for most dealers -- by reducing its sales objectives for his stores.
Several automakers, including General Motors and Volkswagen Group, have already readjusted their pricing strategies in China by reducing list prices closer to prevailing transaction levels.
GM spokeswoman Irene Shen said the automaker was not considering layoffs or big productions cuts.
"GM is committed to China and intends to continue to grow and enhance our business working with our partners in China," she said. "We have made no major moves to curtail production. We regularly manage our production volumes to maintain inventories within a healthy range."
He said business had already been weak, due to China's slowing economic growth, and his stores had to offer a 5 percent discount to attract sales last year.
Over the last week or two, as a stock market rout pummeled the net worth of potential buyers, many of those stores were forced to offer steeper discounts on models such as the BMW X6 SUV, according to the dealer group chief.
"The business has been slow for the last 18 months, but lately we have had to discount even more," the dealer operator said, asking for anonymity because he did not want to damage his group's relationship with BMW.
"When people walk into a showroom now, with anything less than 15 percent discount they would not even consider opening their wallets," he said.
BMW said it understood it was "necessary to support the dealers effectively in a volatile market." The company said it has reduced shipments to help dealers control inventories and took steps to manage their cash flow.
The company also offered to help dealerships establish after-sales services and sell used cars, BMW said.
Discounts and price cuts are being implemented not just among premium cars brands, but appear to have been happening broadly across China's passenger car market.
The volume-weighted average "manufacturer's suggested retail price" for all passenger cars remains relatively high in China, at around 280,000 yuan ($45,000), according to research firm JATO Dynamics.
But actual prices customers pay when buying cars have fallen steadily since 2012 to slightly less than 170,000 yuan, chiefly because of heavy discounting by dealers, according to JATO.
At Mercedes-Benz stores operated by a dealer group with nearly 200 multiple brand outlets, customer traffic at showrooms has dwindled markedly since mid-June, when the stock market slide began.
A senior manager at that dealer chain said customer traffic at some of its Mercedes stores was down last month by 20 to 30 percent compared with last year. Sales were still increasing at some stores, but it required lot more effort and often heavy discounting, he said.
A Beijing-based spokesman for Daimler AG noted its relatively strong sales growth rates in China for the first six months of 2015, when sales grew 21.6 percent. The spokesman did not elaborate.
Sales forecast cut
In the first sign that turmoil in the stock market could affect spending in the real economy, China's automakers' association last week slashed its 2015 forecast for vehicle sales growth to 3 percent.
The China Association of Automobile Manufacturers previously predicted combined sales for passenger and commercial vehicles to grow 7 percent to 25.1 million this year.
Defending the double-digit operating margins that the China car market provided just a few years ago is not easy as the economy cools to its slowest pace of growth in a quarter century. Dealers are tightening their belts to keep margins from falling further.
The BMW dealer group chief said his outlets, which employ about 200 people at each location, had put a hold on new hires. "We have not instituted pay cuts, but we have actually frozen salary increases as well," he said.
The dealer group chief also was trying to persuade the German brand to lower the bar for bonuses and rebates -- a primary source of profitability for most dealers -- by reducing its sales objectives for his stores.
Several automakers, including General Motors and Volkswagen Group, have already readjusted their pricing strategies in China by reducing list prices closer to prevailing transaction levels.
GM spokeswoman Irene Shen said the automaker was not considering layoffs or big productions cuts.
"GM is committed to China and intends to continue to grow and enhance our business working with our partners in China," she said. "We have made no major moves to curtail production. We regularly manage our production volumes to maintain inventories within a healthy range."
