Forget Beijing or Shanghai. Porsche AG, Maserati and Bentley Motors Ltd. are taking the fight for China’s rich to the deserts of Inner Mongolia.
The maker of the 911 sports car opened a dealership in Ordos -- a sparsely populated mining city known as home to Genghis Khan’s mausoleum -- in March after sales jumped 10-fold in four years to 200 vehicles, according to the head of Porsche China. Executives at Volkswagen AG (VOW)’s Bentley and Fiat SpA (F)’s Maserati said they also plan to open showrooms in the city.
“The coal mine and rare earth business in Ordos developed very well in the last years,” Helmut Broeker, chief executive officer of Porsche’s China operations, said in an interview at the Beijing auto show this week. “There have been a lot of people who made a lot of money.”
Luxury-car showrooms are sprouting in rural cities from Ordos to Chairman Mao Zedong’s birthplace of Changsha as growth slows in the nation’s eastern coastal megacities, where premium-vehicle ownership levels already exceed those of the U.S. and U.K. That means central and western China may fuel the next phase of growth for both high-end and mainstream carmakers vying in the world’s biggest automobile market.
“Major cities such as Shanghai, Beijing and Guangzhou powered the initial phase of the auto demand boom,” said Ashvin Chotai, managing director at industry researcher Intelligence Automotive Asia. “Expansion into the inner provinces and smaller cities is a natural aspect of the evolution of the car market and will be an ongoing process in the medium and long term.”
Beijing Parking Lot
While nationwide premium-car ownership in China lags behind the global 10 percent average by two percentage points, their share in eastern coastal provinces already exceed U.S. and European levels, Sanford Bernstein wrote in a report this month. For example, luxury cars accounted for 24 percent of vehicles in Beijing in the first half of 2011, more than double the 11 percent U.S. average, according to the report.
Inland, the residents of Inner Mongolia’s 1.17 trillion yuan economy ($117 billion) aren’t the only ones shopping for $142,000 Porsche Cayenne SUVs and $584,000 Continental GT sports cars. Xi’an, where tourists go to see Emperor Qin’s earth-glazed Terracota Army, Changsha, Shenyang and Harbin will also see an influx of Maseratis and Volkswagen’s Lamborghinis, according to the companies.
“There is a market, there is potential, and we have to follow the market,” said Broeker, who plans to expand Porsche’s Chinese dealership network by more than 40 percent this year, with new showrooms planned for Jinan, Tangshan, Hohhot and Lanzhou.
Christian Mastro, Lamborghini’s Asia-Pacific general manager, agrees future growth may lie inland. The concentration of mining and coal industries in those cities makes them “very important” to China, which may become the world’s largest market for luxury goods in the next decade, he told reporters at the Beijing auto show April 22.
Helped by a government-led push to boost mining production, cities such as Ordos -- whose average estimated economic growth has exceeded 20 percent annually for the past decade -- have prospered. Foxconn Technology Group, the contract manufacturer that assembles Apple Inc. (AAPL)’s iPhone, and Unilever are expanding to Central and Western regions of China. Government officials at Chongqing, Zhengzhou, Changsha and Chengdu all predict economic growth in their respective cities to beat the national average.
$2.7 Trillion Market
“It used to be the poor part, but there’s more and more wealth there,” said Mastro, who plans to start selling Aventador and Gallardo sports cars in Changsha, Shenyang, Taiyuan this year. “We have to be there.”
Lamborghini, Bayerische Motoren Werke AG (BMW)’s Rolls Royce Plc (RR/) and Bentley already say their biggest market is China, where Cap Gemini SA (CAP) and Bank of America Corp. estimate is home to half a million millionaires with $2.7 trillion in wealth. Chinese showrooms formed 10 out of 12 of Porsche’s best performing dealerships globally, the company said April 22.
Deliveries of cars priced beyond 2 million yuan are set to grow 19 percent this year to 5,278, according to data from industry researcher IHS Automotive. By comparison, the state-backed China Association of Automobile Manufacturers predicts the total number of passenger vehicles will increase 9.5 percent in 2012.
“You can’t slow the movement down,” said Bentley CEO Wolfgang Duerheimer, who plans to add showrooms in Tangshan, Changsha, Dalian and Ordos this year. “China is a safe bet.”
Christian Gobber, Maserati’s managing director for China, Hong Kong and Taiwan, said he was surprised four years ago when the automaker’s dealership in the southwest city of Kunming, the Yunnan province capital located closer to Myanmar than Shanghai, exceeded sales projections.
Sales at the Italian automaker’s Kunming dealership have risen five-fold since its opening in 2008, and Maserati now plans to increase its number of dealerships in the nation by as much as 60 percent to 25 dealers this year, focusing on the smaller cities outside Beijing, Shanghai.
Upscale car dealers will be targeting consumers such as Wu Lijun, 25, in Chongqing.
‘Bamboo Shoot’ Demand
“My car isn’t even among the better ones in my hometown,” said Wu, who drives a 7-series sedan, as he browsed through a magazine at a BMW dealership with his girlfriend. “A few of my former schoolmates drive Porsches, Land Rovers. You see Rolls Royces on the road.”
The inland migration isn’t limited to carmakers seeking to cater to the ultra-rich. General Motors Co. (GM) and Fiat have said they plan to expand west.
“If you go to Guangxi, Yunnan, Sichuan and other inland areas you will find demand coming up like bamboo shoots,” said Jack Cheng, general manager of Fiat’s Chinese venture with Guangzhou Automobile Group Co.
Targeting such customers isn’t easy. Porsche only hires locals from the provinces where inland dealerships are located and sets aside more resources to educate customers about the brand, according to Broeker. Chinese customers are also not the most patient buyers, said Bentley’s Duerheimer.
“When a customer comes to the dealership, sometimes for the first time, he expects to take the car when he is leaving the dealership,” he said. “They won’t wait three months for you to deliver. It needs to be there now.”
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