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Luxury Automakers Forced To Offer Big Discounts In China

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2009 Mercedes-Benz S-Class with AMG sports package

2009 Mercedes-Benz S-Class with AMG sports package

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While once they enjoyed record margins on each of their sales, luxury automakers in China are now offering big discounts to move vehicles off showroom floors.

As recently as last year, buyers in China seeking a popular model like the Mercedes-Benz S600 L were paying as much as $31,600 on top of the already exorbitant $409,000 asking price to hasten the delivery.

Today, dealers are discounting some models by that much and even throwing in luxury goods like Louis Vuitton and Hermes handbags to sweeten the deal.

The information was revealed by Mercedes salesman Jack Ren during a recent interview with Bloomberg. And it’s not just Mercedes suffering from lagging sales in China. Audi and BMW are also offering unprecedented discounts on some of its models. Together, the German trio account for about 70 percent of all luxury vehicle sales in China.

The luxury auto segment is seeing a maturing market, especially with more and more brands offering an ever increasing selection of cars. Just today, in fact, Jaguar and Land Rover formed a joint venture with Chery in order to start building its models in China.

The supply of vehicles is finally catching up to the demand, and as China’s economy starts to slow buyers are also holding off on their next purchase. China is now likely to miss the 8 percent growth in new car sales predicted by analysts for 2012.

Automakers in China must now accept that record margins are likely to be a thing of the past and that in future margins will approach levels similar to those in more established markets. The good news for automakers is that the percentage of luxury vehicle sales in China is still relatively low compared to other markets.

In 2010 luxury vehicle sales accounted for about 6 percent of the total passenger vehicle sales figure in China, while in the U.S. they accounted for around 13 percent and in Western Europe they accounted for a staggering 18 percent off all passenger vehicles sold. The global figure is about 7.6 percent.
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