Autos

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

If you were planning on splashing out 1.3 million yuan ($189,000) or so on a car in China, your next ride just got a little more expensive.

Cars costing more than that were slapped with a 10 percent "super luxury" tax starting Thursday to "guide reasonable consumption" and cut emissions, the country's Ministry of Finance announced.

That's got about as much chance of crimping Chinese demand for luxury vehicles as a Honda Civic has of beating a Bugatti Veyron in a road race.

Look, for instance, at the devastation that President Xi Jinping's anti-corruption drive has had on Daimler AG since the policy started in 2013. Far from suffering, Chinese sales of Mercedes-Benz cars have outstripped those in Germany and then the U.S., to the point where the country is now its biggest market:

Best in Class
Mercedes-Benz's passenger sales in China have overtaken those in Germany and the U.S. despite Xi Jinping's anti-corruption drive
Source: Bloomberg

The past year has been a particularly good one to sell sweet rides to China -- one obvious reason why Beijing may be looking to crack down. Registrations of premium sports hypercars such as Lamborghini's Aventador rose 47 percent in the first half of the year, according to Bloomberg Intelligence analyst Steve Man, while those of Rolls-Royce, Maserati, Bentley and Aston Martin marques were up more than 60 percent.

Luxury cars are a classic example of Veblen goods, products for which demand will sometimes rise, rather than fall, with increasing prices. That paradoxical behavior appears to be particularly common in China: While dealers were selling even General Motors Co.'s high-end Buick at 20 percent discounts in the U.S. last month, in China "some of our vehicles are even traded above listed prices," Daimler Chairman Dieter Zetsche said, with an air of mild astonishment, in a July earnings call.

Tax policies are more likely to make a difference at the lower end of the market, where consumers are more price-sensitive. Beijing's halving of sales taxes on cars with engines smaller than 1.6 liters in October 2015 certainly stimulated demand, but only managed to reduce the market share of bigger autos from 8.2 percent in the year before the move to 7.7 percent in the subsequent 12 months.

Small Is Beautiful
China's decision to cut tax on smaller-engine cars from 10% to 5% helped juice sales over the past year
Source: Bloomberg Intelligence

The British automakers that are over-represented in the super-luxury market have another advantage. With their tiny volumes, humongous prices, mania for quality and global customer bases, luxury marques are more likely to have a factory in England than China.

As a result, the likes of Aston Martin, Rolls-Royce and Bentley will already be pocketing benefits from their Chinese sales as a result of the post-Brexit slump in the pound, which has driven the currency down almost 9 percent against the yuan over the past six months.

Accelerator
China's luxury car sales keep going from strength to strength
Source: Bloomberg Intelligence
Note: Shows sales of Audi, BMW, Mercedes-Benz, Land Rover, Volvo, Porsche and Jaguar brands.

They could take advantage of that to counter Beijing's austerity drive and cut prices -- but it's another question entirely whether they'll do so, given the risk of undermining their prestige. After all, the luxury car industry wouldn't exist in the first place if customers were the sort of people to mind their nickels and dimes.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net