The market for premium cars in China has increased at an impressive rate of 36 percent a year in the last decade, faster than the 26 percent annual growth in the overall Chinese passenger vehicle market during the same period. Sales of premium cars in China reached 1.25 million vehicles in 2012, making it the second biggest market in the world after the United States. The premium car market in China represented 9 percent of all passenger car sales in 2012, surpassing Japan (4 percent) and South Korea (6 percent).
McKinsey forecasts that China’s premium car market will grow at an annual rate of 12 percent through 2020, compared with 8 percent for the overall passenger car market. We forecast that sales of premium cars in China will reach three million by 2020, equaling those of Western Europe, and surpassing the 2.3 million sales expected in the US market. In fact, China may overtake the United States as the largest premium car market as early as 2016, when sales could reach 2.25 million units.
Along with the sales increases comes a rapidly changing market landscape. The older generation of premium car owners purchased vehicles mainly to reflect their social status, but the increasingly sophisticated new generation of buyers is expressing other reasons for buying premium autos. This is one of several important findings from a 2012 McKinsey survey of 1,200 Chinese premium car consumers in 12 of the country’s biggest cities that examined brand sentiment, key buying factors, and touch points along the consumer decision journey.
The survey sheds light on consumers’ evolving needs in the premium car market, including the increasing importance to them of value-added services. Multinationals dominate China’s premium car market, with German automakers (e.g. Audi, BMW, Mercedes, and the Volkswagen Group premium cars) accounting for 80 percent of market share; other European, Japanese, and US brands make up the remainder. However, competition is heating up, putting pressure on profit margins.
How should automakers address this fast-growing but increasingly complicated market? To seek answers, McKinsey conducted not only the survey noted above, but also a series of focus groups to zoom in on consumer preferences and purchasing habits as well as interviews with about 60 automotive executives, dealership managers, and industry experts. In addition, we carried out in-depth home and drive-along visits with individual buyers and analyzed more than 6 million Internet and microblog postings for insight into customer perceptions of the premium car market in 2012. Then, we compared our results in China with those of a 2010 McKinsey survey of premium car customers in Germany.
In this report, we synthesize our findings, reviewing the state of the Chinese premium car market, identifying the most important trends, and suggesting what they mean for multinational premium automakers. We don’t claim to offer a complete picture of the premium car market in China but rather provide an overview of the trends and consumer preferences that will likely influence automaker responses to the big changes ahead in the market.
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