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White Paper: Luxury Cars for the Overseas Market

By Mike Richards Updated: 08/05/2017 Posted: 10/27/2015

Growth in the Global Luxury Car Market 

Luxury cars represent a growing segment of the new and used car market, accounting for 11% of total new car sales, when measured by the number of units sold. When looking at revenue, luxury cars account for 18% of all car sales revenue, worth $100 billion.

Growth in the global luxury car market in 2015 is expected to be led by demand from emerging auto markets, China and India. China is projected that the luxury car market in China will grow at an annual compounded rate of 12% in 2014-2020 while the overall passenger car market will grow at 8%. (1)

Premium and Sub-Premium Vehicles

According to KPMG, “in 2020, the vast majority of vehicles sold in established and establishing markets will belong to the so-called sub-premium segment. In the established markets, the premium segment will continue to grow, reaching 15 percent market share by 2020, equivalent to a total annual sales volume of 6.4 million vehicles.

In contrast, premium vehicles will only make up 5.5 percent of annual sales in establishing markets by this date. This equates to an annual volume of 4.1 million vehicles – well below the figure for the established markets of North America, Western Europe and Mature Asia. The economy segment, on the other hand, will not play a significant role in the established markets until 2020. In establishing markets, however, almost one in every four cars will be an economy model, catering largely to price-sensitive middle-class customers.” (2)

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Source: KPMG (2016)

Healthy Growth

Given this overview of the global market for luxury vehicles, one is left with a number of choices based on the fact that the luxury car market has displayed healthy growth on the demand side and will likely continue to follow this trend for some time.

However, this should not be an indication that luxury cars will sell in every country, rather it is quite the opposite, as high demand for luxury cars coincides with certain country level drivers. Further, selecting a target market for luxury vehicles must also consider the fact that the luxury car market in the target market must be underserved in that demand for vehicles is not being met or demand is being met and vehicles are simply overpriced due to a consolidated retail market or low supply.

Drivers of the Luxury Car Market

According to the Auto Channel:“The main drivers for demand for luxury vehicles are a large group of high net-worth individuals and a smaller group of ultra-high net-worth individuals. These continuously expanding groups enjoy luxurious lifestyles and many want to show their wealth through the car they drive. Therefore, emerging markets present the perfect market opportunity to find upwardly mobile individuals who wish to flaunt their newly found wealth with a luxury vehicle that serves as a status symbol.

Secondly, these status seekers should not have an available outlet for luxury vehicles, therefore exports to this market would fill an unmet demand. Unmet demand can be easily measured through a number of indicators such as a lack of domestic luxury car dealerships and excessively high market prices for luxury vehicles.” (3)

The BRIC Markets

According to  Visiongain, “The premium car segment in the BRIC countries (Brazil, Russia, India and China) has been one of the fastest-growing segments in the global automotive industry over the past five years. The economic expansion of the BRIC nations has not only led to rapid motorization but recently also to a growing desire for status symbols which automotive luxury and exclusivity can provide.

High net-worth individuals will remain an important group in the premium car segment in the BRIC countries but in the middle and long term, they will move to the two highest submarkets; luxury and ultra-luxury. The premium submarket will increasingly see sales to well-paid businesspeople and government employees. This will cause the market to move to a state where division between submarkets is similar to developed nations. It will also mean that there is significant growth potential in the whole premium car segment in the BRIC countries.

The BRIC countries will thus become more important to premium carmakers and will be taking up a growing share of the global premium car segment. This will result in an increasing focus on adjusting product design and specification to the requirements of consumers in the BRIC countries.” (4)

It is important to note that while market entry conditions in Brazil, Russia and India are favorable, China represents one of the most promising markets, but the most difficult to enter. The reason behind this difficulty rests in the fact that Chinese import regulations are notoriously difficult to navigate and subject to change at a moment’s notice.

However, there have been some overtures made by the government to loosen restrictions on grey market imports, particularly among luxury vehicles. Recently, officials announced a parallel import scheme that would legalize the sale luxury vehicles by unauthorized dealers in a move to rein in high-end car prices. (5)

The reason for this shift is the accurate assessment by the government that the luxury car market has been monopolized by a handful of players who have been able to charge exorbitant amounts for luxury vehicles, in a market starved for these vehicles.

Luxury Car Sales by Brand

German brands, BMW, Audi and Mercedes represented a vast majority of the luxury car market in terms of units sold.luxury3

Source: Statista (2015)

Given these figures, exporters of vehicles from the United States will be pleased to learn that these top three luxury brands are also the three luxury brands most sold in the United States market.  In 2014,  BMW sold 339,738 vehicles. Mercedes-Benz was a close second with 330,391 sales in 2014. Audi managed 182,011 vehicle sales in 2014. (6)

However, there may be room for additional competitors in this space as Lexus sales rose 14 percent to 311,389 units; Acura sales rose 1.5 percent to 167,843 units; Infiniti sales rose 0.8 percent to 117,300 units; and Lincoln sales rose 16 percent to 94,474 units. These figures would indicate a high supply of these vehicles in the United States and also ample opportunity for bargains on used models for export overseas.

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References

(1) http://beforeitsnews.com/r2/?url=http://www.marketreportsonline.com/contacts/purchase.php?name=405137
(2) https://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/global-automotive-executive-survey/Documents/2015-report-v1.pdf
(3) http://www.theautochannel.com/news/2013/05/07/075352-premium-and-luxury-car-markers-will-sell-1-575-000.html
(4) http://www.linkedin.com/redir/redirect?url=http%3A%2F%2Fwww%2Evisiongain%2Ecom%2FReport%2F1023%2FLuxury-Vehicles-in-Emerging-Markets-2013-2023&urlhash=_LrO
(5) http://www.reuters.com/article/2015/02/04/china-autos-pricing-idUSL4N0VD4TC20150204
(6) http://www.motorauthority.com/news/1096147_audi-bmw-and-mercedes-benz-all-achieve-record-u-s-sales-in-2014

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