Famous carmaker BMW is looking to score big in China, thanks to that country’s economic boom and expanding middle class. The demand for premium Western automobiles (as opposed to Japanese and Korean models) is going through the roof, as the Chinese express a preference for European and American models. BMW feels it is nimble enough to tap into the Chinese market faster than its competitors, and is raising profit projections accordingly.
BMW is partnering with PSA Peugeot Citroen to expand its market to more of Asia. Part of this initiative is prompted by continuing weakness in the Eurozone, where sales are flat.
Densely-populated countries like China, India and Russia are the latest markets for luxury and premium automobiles. These countries are all experiencing fast growth, and in fact China is trying to apply the brakes so as to hold down inflation. Nonetheless, BMW forecasts a huge pent-up demand for its more expensive cars. BMW has historically been very conservative in its forecasts, so the fact that they are looking for explosive growth shines a favorable light on the entire Asian luxury car industry segment. It also means that BMW doesn’t believe that the Chinese economy is going to slow down appreciably in the next year.
There seems to be a direct relationship between vehicle price and demand, just the opposite of what you would expect in most markets. In other words, demand for higher-priced vehicles is outstripping the demand for cheaper models. This plays right into BMW’s strength, as most of their well-equipped models are at the top of their price ranges. One particularly strong model is the X5. Demand for it, as well as for BMW X5 parts, is furious, with some models selling at substantial premiums.
One spur to the demand for cars has been the ambitious highway construction programs undertaken by the Chinese government. In 2008, five north-south and seven east-west national highways were completed, adding 22,000 miles of world-class road. The cities of Beijing and Shanghai are being linked by major expressways to all of the nation’s provincial capitals and autonomous regions. Over 200 cities will be connected by the National Trunk Highway System. When complete, the network will extend some 53,000 miles. It is evident that expressway travelers are increasingly likely to observe and/or drive expensive European automobiles such as BMW and Porsche. For a firm like BMW, China will be an important market for the foreseeable future.