The days of record-high profits for Mercedes-Benz dealers in China may be over. Bloomberg is reporting that the German luxury automaker has been offering drastic discounts as high as 25 percent on some models like the S-Class, the brand’s flagship sedan, which is usually spared such price slashing.
The changing Chinese car market is also affecting Benz’s German rivals including Audi, which has offered discounts of 20 percent off the MSRP for cars like the A8L. Some dealers have resorted to gifts – from iPhones to free car insurance – in an attempt to entice new customers. Supercar manufacturers are feeling the pinch, too. Lamborghini recently predicted that its sales growth for 2012 in China would only be 20-30 percent, significantly lower than the 70 percent increase they enjoyed last year.
“The margins they currently achieve in China are not sustainable,” said Arndt Ellinghorst, London-based analyst at Credit Suisse, to Bloomberg. “Price competition will intensify.”
In the past, customers wanting to buy a Mercedes-Benz S-Class would often pay the dealership extra to gain a higher spot on a waiting list. Not anymore. Jack Ren, a Mercedes-Benz salesperson in Shanghai, said his dealer offered record-high discounts on S-Class sedans last month.
Despite the heavy discounts, most cars in China are priced significantly higher than here in the States. The S600, for example, costs 2.59 million yuan, which is about $409,500 by today’s currency rates. The same car stickers for about $163,000 in the U.S. Despite decreasing demand, Jaguar and Land Rover are moving forward with their recently announced partnership with Chinese automaker Chery to build cars in China. JLR’s parent company Tata Motors plans to invest $2.8 billion to build and develop cars in the country and is currently awaiting approval from the Chinese government.