The Premium Segment Takes the Fast Lane

New models are appealing to a wider range of customers, bringing strong growth.

By Don Shapiro

“A good economy, good market, and good exchange rates” is the way Edward Butler, the marketing director for Audi Taiwan, sums up the reasons why the premium segment of Taiwan’s car market is growing at an even faster clip than the market as a whole.

Such premium cars are all imports, and the strength of the New Taiwan dollar, especially against the Euro and the yen, has helped make sticker prices look more attractive to local buyers of German and Japanese vehicles. In addition, the Taiwan economy – while far from enjoying the boom days of old – has been performing rather well compared with many other parts of the world. With the major international brands “in a highly competitive situation where many markets are struggling,” says Butler, “manufacturers are pushing very, very hard to promote their business here.” Mercedes-Benz and BMW, the longtime market leaders in Taiwan, are being increasingly challenged for market share by Lexus and Audi.

Ryan Lai, general manager of the Lexus division at Hotai Motor Co., the local distributor for Toyota and Lexus, cites another factor for the strong sales in the premium segment – the existence in Taiwan of an M-shaped society, with more and more people having the wealth to buy a luxury vehicle. In fact, says Thomas Fann, president of Ford Lio Ho, the trend towards premium cars is a “global phenomenon.” Citing possible links to the growing income inequality seen in much of the world, he observes that “the richer people really don’t care too much about how much the vehicle costs.” He also notes surging numbers of retired baby boomers contributing to the growth in the luxury car market. “They are retired and have an empty nest. Where else are they going to spend their money?”

Ford’s luxury brand, Lincoln, was launched in the China market this fall, but so far there are no plans to offer it in Taiwan. Instead, Ford has been bringing in limited quantities of its iconic Mustang sports car.

Yet another contributor to the growth by premium brands has been the effort in recent years to extend their product lines by bringing out smaller, often sportier models, to appeal to a younger car-buyer. “Worldwide we’ve introduced more entry-level cars into the market – we call it NGCC for new-generation compact car – and it’s enabled us to expand the market and reach new groups of customers,” says Kim Lin, general manager for public relations at Mercedes-Benz Taiwan. “Combining that business with the stable growth enjoyed by our traditional segments has brought very good results.”

In the first 10 months of this year, the premium market saw the number of vehicles sold increase by 19.8% over the same period last year. That compared to only 14% for the non-premium segment. BMW and Audi were both up by around 19% and Lexus by more than 20%, while Mercedes-Benz, already the sixth largest seller overall on the passenger car market with a 5% market share, registered 17% growth. Kim Lin notes that “for 20-some months already, from 2012 until now,” Mercedes-Benz “has set a new sales record every month – it’s quite amazing.”

For 2014 as a whole, sales are forecast of some 68,000 premium vehicles, and based on projections that Taiwan will continue to enjoy decent GDP growth in 2015, most of the makers expect the market momentum to be sustained. Some in the industry, however, are a bit concerned that the impulse to purchase an expensive new car might be affected by the political uncertainties generated by last month’s elections, especially with the 2016 presidential campaign drawing near. “Although the purchasing power will still be there, the luxury-segment buyer tends to become more conservative when there’s uncertainty in the external environment,” explains one industry veteran. “For them, it’s a type of investment, not just a transportation tool.”

Rolling out new models

The more common sentiment in the industry, however, is that the new models steadily being introduced will stimulate continued consumer interest. At Lexus, for example, Ryan Lai notes within two months following the release of the NX300 compact SUV hybrid in August, the company received over 1,900 orders, with some customers having to wait until the new year to get delivery. “It’s the hottest selling model Lexus has ever brought out in Taiwan,” he says. Another new model launch in November was for the fashionable RC 350F, Lexus’s first offering in Taiwan of a coupe, set to compete with similar models from BMW and Mercedes.

Next year, mainly because of the coinciding of production cycles, Lexus will be launching new models each month from August to the end of the year, including a turbo-engine version of the NX300. “It’ll be a year of a lot of change,” says Lai. Given the impetus from the new models, Lai expects only moderate impact from an expected revision in government policy to remove subsidies – in the form of reduced commodity taxes – for imported hybrids. The change is a likely response to legislators’ criticism that the subsidies should not apply to luxury imports, and that the original intent of the program was to promote fully electric vehicles. “Of course, hybrids also contribute to improving the environment,” says Lai.

At Mercedes-Benz Taiwan, this year’s new models included a new generation of the popular C-class executive-car compact, the GLA crossover small-sized SUV, its “flagship” S-class coupe, and a CLA four-door coupe. An even larger number of launches is planned for 2015. “In Taiwan, in particular, customers have a very strong new-car mentality,” says Kim Lin.

Since setting up its own operation in Taiwan in 2009 after previously having been represented by an agent, Audi has been aggressively seeking to expand its foothold in the market. “Before, Audi wasn’t reaching its potential in Taiwan,” says marketing director Butler. “Mercedes and BMW were dominating the premium segment, whereas Audi is usually right up there with them in most markets.”

He says Audi has been making rapid inroads – this year it expects to sell close to 5,000 cars here, compared with only 900 in 2008 – by building on the image of being “very innovative and dynamic – a sort of sportier, cooler premium car.” The brand has consciously tried to appeal to the younger set. “Their father or grandfather drives a Mercedes or BMW,” says Butler. “They think ‘we are a different generation. We don’t have to behave the same way.”

“When we launch a new car we try to do something spectacular that will create word of mouth and drive brand awareness,” says Butler. For the launch this past April of a new version of the A8 sedan, for example, the company cooperated with Kaohsiung-based Horizon Yachts to take a hundred guests out for a cruise on a 54-meter super-yacht. The group was then ushered into one of the yacht-builder’s hangars, converted for the evening into a venue for fine dining and entertainment with one long table.

Audi is also emphasizing social media. This month it has set up eight-meter-tall LED screens in the Xinyi shopping district to create a giant Christmas-tree effect; members of the public are being invited to take photos of themselves at a booth on the site, or to send them in by email, for posting on the tree.

Butler also stresses that Audi is proud of its technological advances, such as the A8’s lightweight aluminum body, matrix headlights with receptors that automatically adjust the intensity of the beam, and Quattro 4-wheel drive “that keeps you glued to the road in extreme conditions.”

A potential new entrant in the premium category is Volvo (now owned by Chinese automaker Geely), which has begun importing its updated XC90 luxury SUV. The new XC90 is Volvo’s first model priced high enough (over NT$2 million) that the 10% luxury surtax kicks in.

Beyond luxury, of course, there is super-luxury – represented by such potent brand names as Maserati, Lamborghini, Ferrari, Rolls Royce, and Bentley. With cars priced at NT$13 million on up, it doesn’t take a high volume of sales to make for a profitable operation. James Chen, director for marketing & PR for Bentley in Taiwan, says that at least 300 “high-luxury” cars will be sold in Taiwan this year. He says Bentley currently accounts for about 60 of those vehicles, and expects to bring the number up to 100 next year.

Chen describes the Bentley customers as 95% male and mainly in their fifties. Many of them are in the construction or real estate businesses, have made their fortune in China, but are now back in Taiwan spending their money on luxury housing and automobiles. Bentley PR manager Vivi Chang says some of the customers are “collectors” who may own several different super-luxury brands and use them for different purposes – perhaps driving the Ferrari to a nightclub to impress women but switching to a Bentley the next day to attend a business meeting. “High-luxury” may be a niche market, but what a niche!

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