BMW takes China sales drive on the road

BMW is seeking out new customers in some unusual corners of China as it rides the biggest boom in automotive history. On a recent weekday afternoon, 100 people attended an “Open Course” at a BMW dealership in Nanning, a relatively unknown backwater in the country’s southwest.

Unique to the China market, these hour-long interactive sessions typically feature an automotive expert and attract both BMW owners and potential first-time buyers, many of whom are novice drivers. There is no overt sales pitch, although that can always come afterwards as attendees inspect vehicles on display in the dealership.

Michelle Wang, the executive who conceived the German carmaker’s “Open Course” concept to educate and entice China’s fast-growing population of new car owners, says BMW has “no limits [on who can attend]. We even have Volkswagen owners.”

Such events are relatively new in places such as Nanning, the capital of Guangxi province and a classic “tier three” city in the parlance of consumer analysts. Though lacking the wealth of Beijing and Shanghai, let alone smaller but still rich “tier two” cities, these urban centres are emerging as attractive markets and the best potential source of new sales for carmakers.

According to Bernstein Research, last year eight of China’s 10 fastest-growing car markets – and 10 of the top 15 – were located in poorer provinces such as Guangxi, where car sales increased almost 30 per cent year-on-year. Such data are based on car registration figures closely held by Chinese police and have only recently come to light.

“China is just too vast with too many regional differences to be looked at as one market,” writes Max Warburton, a senior Bernstein analyst. “To understand China we need to look at it province by province.”

The shift could fuel another automotive boom. In the five years to 2013, annual passenger vehicle sales tripled to 18m units as China overtook the US as the world’s largest car market.

“This time last year, we would have said the market would grow in the high single digits and [our sales] ended up 20 per cent up,” Ian Robertson, a BMW director and head of sales and marketing, told the Financial Times recently. “We still think it will normalise at high single digits. But we might be surprised again.”

On Monday, the China Association of Automobile Manufacturers reported that sales of passenger sedans and SUVs rose more than 11 per cent year-on-year in January and February. The Chinese market accounted for more than half of the 5 per cent annual growth in global car sales in the first two months of the year.

The historic surge of 2008-2013 was driven by large cities and rich coastal provinces, some of which are now limiting the issuance of new licence plates to combat congestion and pollution. In the first 11 months of 2013, according to Bernstein data, passenger car sales fell more than 4 per cent in Beijing and rose only 0.2 per cent in Shanghai.

Chinese-brand cars lose traction at home

Wang Chao, the guest speaker at BMW’s Open Course in Nanning and a famous designer and builder of mini-cars for Chinese rich kids, ticked through the essential design elements that make a BMW a BMW.

He then did the same for Cadillac, Lexus and Rolls-Royce models. At no point did he highlight a Chinese-brand vehicle. The slight was in keeping with what has been a terrible run for China’s domestic car producers, which are rapidly losing market share to foreign-invested competitors and imports.

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“Many of [our sales] are in cities that didn’t have a car dealership until recently,” Mr Robertson says. “We’re into the majority of third-tier cities and pushing into fourth-tier cities. We’re talking cities of over 1m people.”

Nanning is home to 6.5m people. But like many Chinese cities, that includes a large rural hinterland; its official “urban” population is less than 3m. BMW now has about 420 dealerships across China, more than half of them in these “lower tier” centres.

The Nanning dealership sold 2,000 BMWs last year and projects that figure to grow 25 per cent in 2014, according to its general manager, Tony Wei. “There has been a very clear trend over recent years,” he says. “People are now prepared to spend more money and buy a luxury automobile.”

Lu Hong, who drives a VW Passat, is typical of the consumers Ms Wang is trying to attract with BMW’s open courses: he is thinking of upgrading because “BMWs are much faster”.

He attended the course with a friend, Zhuang Zhixian, who does not own a car but is eyeing one of BMW’s cheaper models, such as a Mini – priced at Rmb298,000 ($48,500) with a 10 per cent discount if customers “buy today” – or a 1 series sedan for about Rmb320,000.

Both Mr Lu and Mr Zhuang had come to hear BMW’s featured speaker, a Beijing-based designer most famous for making elegantly crafted mini-cars for children, and took careful notes throughout the hour-long presentation on basic design concepts and hobby cars.

BMW and other foreign carmakers now rushing into lower-tier cities to tempt potential customers are simply following the money. While definitions vary, one industry consultancy defines tier one and tier two cities as urban centres with per capita GDP levels of $12,700 and $7,100, respectively.

According to Synergistics, the consultancy, per capita GDP in lower-tier cities – home to more than 80 per cent of China’s population – ranges between $3,300 and $5,400. As that figure rises towards $10,000, car sales are accelerating rapidly.

Conscious of its luxury image, BMW does not fundamentally alter its sales pitch in lower-tier cities. Like its dealerships in richer urban centres, the one in Guangxi employs a “product genius” to explain each car’s design and technology features to potential customers while leaving the salespeople to close deals.

The approach contrasts with that of other companies, such as SGMW, GM’s Guangxi-based manufacturing joint venture with SAIC Motor and Liuzhou Wuling Motors, that do tailor their approach to lower income buyers.

“You have to be careful you don’t ‘over-content’ these vehicles,” says SGMW executive vice-president Ray Bierzynski, whose joint venture makes Wuling minivans and Baojun sedans. “People in these areas want solid, reliable transportation but they don’t necessarily need all of the high-end bells and whistles.”