Could the Luxury Car Market be in Decline?

• January 28th, 2014
• superadmin

While the markets for many products have slowed due to a sluggish global economy, many would expect the market for luxury items to remain the same or even improve. However, as it happens, the luxury car industry is not doing as well as it had hoped. Here’s a look at the factors affecting a slowdown in luxury car sales over the past few quarters.

The Luxury Car Market

China’s Relationship to the Issue

One of the major players in the slow of luxury car sales is China. For the past few years, China has been an increasingly large market for luxury goods, including luxury cars. As nation developed rapidly, many individuals in China found themselves in a new found position of wealth and were suddenly able to make purchases on the global luxury market. What happened next was a huge surge in the purchase of luxury goods in China and from global sources. The sheer size of the population, and the number of people with new found wealth, meant that the sale of luxury goods in the country exploded.

Over only a few years, China went from being barely on luxury goods companies’ radars to being a huge target for sales. Luxury companies began to focus their marketing and selling efforts on China more than ever before. But when a company is reliant on a single population for a large portion of its revenue, this can create a precarious position for the company should this source of income begin to fail. And that, unfortunately, is exactly what’s happening with China.

What Goes Up, Must Come Down

The absurd growth in purchases from China was unsustainable. The initial frenzy that drove many newly wealthy Chinese to spend a lot of their capital subsided. While many people in the country continue to gain in wealth, and new millionaires are established all the time, the rich have begun to have a certain level of sensibility that comes with being developed. High levels of consumption have leveled off in the country.

Another factor in the shift is that the wealthiest residents of China increasingly are moving abroad. Whereas many of these individuals remained in China before and could be targeted by marketing efforts focused in China, the marketing now doesn’t reach these same individuals. Luxury car companies will need to refocus their huge efforts for marketing in China. In order to remain successful, they will need to identify their new centres of highest marketable populations.

As the numbers of cars being sold in China grew at such a remarkable pace, it could only have been predicted that these numbers would eventually level off. We have entered the phase where the interest and ability to purchase luxury goods has reached moderation within this developing nation. What’s less clear, however, is what the auto companies have done to prepare for the plateau that their sales would inevitably reach in this region. It remains to be seen, as well, how these companies will deal with the shift and whether they will continue to plow ahead in the Chinese market.

Efforts to Counteract the Slowdown

In an effort to maintain the level of profits and number of sales in the Chinese market, many luxury auto companies have taken action to delve more deeply into the market. The establishment of additional facilities and representatives in the country is a move that companies like BMW are taking. They plan to redouble their efforts to connect with families making more than $80,000 per year, as this sector of the Chinese population is expected to grow rapidly over the next decade. So, despite some setbacks in the immediate future, many luxury car brands continue to have a good outlook for the future.