DaimlerChrysler said China would approve a plan next month to manufacture Mercedes-Benz cars in the world's third-largest vehicle market, adding to a glut of capacity that is forcing rival BMW to cut prices.
"As capacity increases, naturally competition will increase," said the DaimlerChrysler spokesman in Beijing, Trevor Hale. "We're confident we can increase our position."
Chinese car sales growth dropped in the 20 months since DaimlerChrysler invested US$1.3 billion, with Beijing Automotive Holdings to build 25,000 C-Class and E-Class luxury cars a year.
Growth in car sales slowed to 15 percent last year, after surging 76 percent in 2003 and 50 percent in 2002, the Chinese Government said. Bayerische Motoren Werke (BMW), General Motors, Toyota Motor, Volkswagen, Ford Motor and Nissan Motor spent US$15.6 billion on Chinese auto ventures in the past two years.
China can now make 40 percent more cars than it can sell, Credit Suisse First Boston analyst Koji Endo said.
"It will take several years for the market to grow enough to handle all the excess capacity," said Markus Brueck, a fund manager at Metzler Investment in Frankfurt. In the "long term, premium carmakers have to be in China, but they will go through a rocky patch."
The chief executive of DaimlerChrysler, Jürgen Schrempp, is under pressure to revive the reputation and sales of Mercedes and retake the position of world's largest luxury carmaker, lost to BMW this quarter. Schrempp faced calls for his resignation at the company's annual meeting April 6 after recalling 1.3 million Mercedes cars to fix defects last month.
BMW sold 8,661 Chinese-built cars last year, out of 30,000 3-Series and 5-Series cars it has the capacity to make in the country.
The company's total sales in China were 15,480 units last year, including imports.
The Munich-based carmaker cut the price of its China-made 318i, 325i, 520i and 525i models by 14 percent after sales fell 16 percent last year.
BMW cut the price of 530i sedans in January to 598,000 yuan (US$72,252), in China from 698,000 yuan. The same models sell for US$46,500 in the United States and US$53,623 in Germany.
Foreign carmakers were able to maintain higher prices in 2002 and 2003 amid rising sales. DaimlerChrysler has not cut the price of its Mercedes.
General Motors, Ford, BMW, DaimlerChrysler, Toyota and the world's other major carmakers will display their vehicles at the Auto Shanghai 2005 show this week.
The Chinese economy, which expanded by an average 9.3 percent in the past 15 years, has created a generation of wealthy people, with 210,000 millionaires in U.S. dollar terms in 2003, according to a Cap Gemini Ernst & Young 2003 world wealth report.
The nation had three billionaires last year, according to a Euromoney annual ranking of the richest people in China.
That has attracted the attention of the world's luxury carmakers. BMW began making 3-Series and 5-Series cars in northeastern city of Shenyang in 2003. General Motors last year started producing Cadillac CTS sedans and SRX sport utility vehicles, the first time the Detroit carmaker made the Cadillac brand outside North America and Europe.
The Volkswagen Audi unit, which makes A4 and A6 cars in Changchun in northeastern China, has 40 percent of China's market for cars that cost more than US$50,000 each. The Premier Automotive Group unit of Ford, which makes luxury models like Aston Martin sports cars, Jaguar sedans and Range Rover sport utility vehicles, said it was considering plans to make Volvo cars in Nanjing in eastern China's Jiangsu Province.
Audi sold 64,018 cars in China last year, little changed from 2003 and its Chinese partner FAW Car said sales would not rise this year. Audi cut 43,000 yuan from the price of its A6 model, which competes with the BMW 5-Series in China.
Luxury carmakers are not the only manufacturers feeling the pinch. The combined profit of China's largest carmakers fell 78 percent in the first two months of 2005, with more than half of them losing money, China's National Bureau of Statistics said.
Chongqing Changan Automobile, which makes Ford Mondeo sedans and Suzuki Motor Alto compacts in southwestern China, reported a 77 percent drop in fourth-quarter profit and a 17 percent decline in 2004 net income April 14.
Denway Motors, which makes Accords and Civics in southern China with Honda Motor, said second-half profit rose 13 percent, slower than the 77 percent rise in 2003.
(Shenzhen Daily April 21, 2005)