Vorsprung Durch China: Sales Restrictions in Chinese Cities Will Not Stop Audi Becoming the World’s Best-Selling Premium Brand

There has been a flurry of announcements recently regarding the record sales of Audi, BMW and Mercedes-Benz cars in March and the first quarter of 2014. Better weather in the US, the recovery of car sales in Europe and the later timing of Easter this year are all cited as reasons for the on-going surge in demand for the German premium carmakers’ offerings. Whereas these are all contributory factors, the omission of any reference to the swelling ranks of wealthier consumers around the world who can afford upscale cars, especially in China, is noticeable. After all, it is this ever expanding pool of new consumers in their largest market that will ultimately make Audi the best-selling premium brand in the world. Car sales restrictions in Chinese cities will naturally slow proceedings but Audi’s investments in both its dealer network and local production of compact models is bound to more than compensate.

Two years ago, I discussed the correlation between sales of Audi, BMW and Mercedes brand cars and the development of households with over US$100,000 annual disposable income and the predictions made then still hold up today. First, China became the largest market for the combined sales of Audi, BMW and Mercedes in 2012. In fact, China became the largest single market for Audi in 2011 and for BMW in 2013, with only Mercedes still more dependent on sales in the US and Germany. Second, global sales for the three German premium brands are still on track to easily exceed 5 million units in 2015 – in fact, the 5-million milestone is likely to be reached in 2014 given the recovery in the US and Europe and the continuously rising number of affluent households around the world. Third, despite the model offensives of BMW and Mercedes, Audi’s leadership in China will propel it to become the largest premium carmaker, albeit not before 2015.

To put the importance of China for Audi into perspective, out of 1.58 million sales globally in 2013, nearly half a million units went to Chinese consumers. China therefore now accounts for 30% of Audi’s sales worldwide, compared to approximately 20% in the case of BMW and 15% for Mercedes. As Audi consistently outsells BMW and Mercedes in both China and Europe, it naturally stands to benefit most from the recovery in the West and the on-going rise in wealthy households in the East, which will easily outweigh demand growth in the US, where Audi lags behind its peers.

One cause for concern is the increasing curbs on new car sales in Chinese cities in order to reduce both congestion and pollution. However, Euromonitor International data suggest that the six cities that have already introduced measures – Beijing, Shanghai, Tianjin, Guangzhou, Guiyang and, most recently, Hangzhou – actually only account for 15% of all Chinese households with an income over US$100,000 and that share is even diminishing.

Households with annual disposable income over US$100,000 in the 6 restricted cities and the rest of China, 2005-2020

Source: Euromonitor International

The potential in China therefore remains immense and this has certainly not gone unnoticed at Audi, which expanded its dealer network to 340 sites in over 150 cities in 2013 and plans for 500 sales partners in 2017, according to an article in Automobilwoche on 4 April. Furthermore, Audi is investing in local production of compact models in China; the Q3 started production in November 2013, the A3 Sportback joined it in March and the A3 sedan is scheduled to roll out in the summer. This investment makes perfect sense given that the compact segment is the largest in China and is gaining ground. The upshot is that despite any car sales restrictions, China will ultimately propel Audi to become the largest premium carmaker in the world and these latest initiatives will help the brand to get there even quicker. Still not before 2015 though.