China's luxury car market is on fire, literally

September 04, 2010 | Posted by Chris

A Ferrari 458 Italia on fire in France, above. Of the 5 to catch fire this past month, 2 were in China.

When Ferrari announced earlier this week that it was recalling all 458 Italia models made this year after 5 had caught fire due to poor adhesion of internal heat shields, it revealed an anecdote of the times in the luxury car market: two of the five incendiary cars were in China, compared with one each in the US, France, Switzerland, and one other unnamed location.

The Ferrari 458 Italia costs $260,000 in the US and Europe, but in China the price is twice that -- $550,000 -- due to extra taxes. This stastic may point to the obvious, which is that China's super wealthy really like expensive cars, but it also illustrates China's shift as the focus of the global luxury car market.

Car sales in the US, for example, have been decreasing, seen in the fact the total sales for last month were less than one million vehicles. The Associated Press reports:

"Coming in below a million units is eye- opening for August," said Paul Ballew, a former chief economist for GM. "I never thought I'd see that. That's a tepid month for August, which is supposed to be one of the top months of the year."

And continues:

Automakers can also count on other markets to make their profits. In China, August sales rose 56 percent over last August, to about 1.2 million vehicles.

So therefore it's little surprise that car makers like Audi are introducing to China cars that it has no plans to sell in the US. For example, the entry level Audi A1 is set to sell in China next year, and Mercedes is introducing another luxury super car there beginning this year. Mercedes is doing great in China, according to Gasgoo Automotive News:

In the January-to-July period, Mercedes' China sales totaled 74,070 vehicles, up 134% from a year earlier, of which the Mercedes-Benz S-Clss sedan sold 11,600 units, and 2,444 units in July, up 218% year on year, making it the best-selling model for two consecutive years in the world's biggest auto market.

Chinese car pioneer Geely is also racing to increase its reach. Its recent purchase of Volvo from Ford for $1.5 billion is reported to hinge on a strategy of boosting the brand's image for luxury and personality. "Luxury future for Geely" contends one report on the carmaker's strategy, which includes getting more government officials behind the wheels of Volvos. John Zeng, director of Asia vehicle forecasting for JD Power and Associates in Shanghai, surmises the future of luxury cars this way:

"Geely has got Volvo at the right time,” he said. "The luxury car market will be one of the fastest-growing segments in China and with the entry premium-level cars' prices continuing to drop, that will attract more consumers previously used to cars like the [Toyota] Camry or the Honda Accord."

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