Will Shanghai Luxury Rides Rival U.S.? Car Makers Bet Buyers Want Same in China as in U.S.

Will Shanghai Luxury Rides Rival U.S.?

Car Makers Bet Buyers Want Same in China as in U.S.


Nov. 13, 2013 12:05 a.m. ET

When it comes to luxury cars, consumers in Chicago have more in common with Shanghai than Stuttgart. That is the bet that Ford Motor Co. F +2.27% is placing with a new Lincoln luxury model. And many of its rivals in the premium car business are making the same call. Lincoln, best known for cushy, plus-size vehicles, is expected to unveil on Wednesday a new small sport-utility vehicle called the MKC. It will go on sale starting next year in largely identical versions for in the U.S. and China. It won’t be sold in Europe.That is significant because for decades, auto makers struggled to design cars that could sell in the U.S. and Europe without significant modifications, the better to spread engineering and design costs over a broader base. The U.S. and Europe were the world’s two biggest markets, so the goal made sense. But particularly for the Detroit auto makers, the efforts to build one-size-fits-both models fell short, because European and American consumers have different tastes. Europeans like hatchbacks and station wagons, for example. Americans largely don’t.

Now, auto makers, and particularly luxury car brands, are shifting their focus, directing more energy toward exploiting an increasing convergence of consumer tastes among affluent drivers in the U.S. and China. One result of this is the coming wave of small sedans and compact SUVs from luxury brands, which can now build sales and profit projections for such models not just on Europe and the U.S., but on the enormous Chinese market as well.

“The emergence of China, for all luxury brands, has been a game changer,” said Jim Farley, Ford’s head of global sales and marketing. Ford decided to make the MKC the second of four new vehicles it is developing for Lincoln in part because its marketers several years ago believed Chinese consumers would see SUVs as “aspirational” purchases, much as many U.S. consumers do, he said

The exterior and interior styling of the MKC reflect a “global outlook,” said Lincoln chief designer Max Wolff. When it comes to materials and colors, he said, “the similarities are more striking than the differences.” Even white, once thought to be a taboo color in China because of its association with funeral vehicles is now the second best-selling color, he said.

The backs of the MKC’s front seats are fully covered, so the bottom of the metal frame isn’t visible to rear-seat passengers. It is a nice touch to convince a U.S. shopper the MKC should command a higher price than its small SUV cousin, the Ford Escape. But it is vital for China, where sometimes owners ride in the back

In China, the upwardly mobile entrepreneurs that Lincoln wants to attract are in their late 20s and 30s while U.S. customers are in their 50s, said Lisa Drake, the Lincoln MKC’s chief engineer. The MKC will come with four cylinder engines in both countries. Chinese consumers tend to be less obsessed than Americans with the size and performance of the engine, Ms. Drake said.

Rival auto makers also see a convergence between the world’s No. 1 and No. 2 auto markets. “What is preferred in the U.S. is preferred in China,” said Hakan Samuelsson, chief executive of Volvo Cars, a unit of Chinese auto maker Zhejiang Geely Holding Group Co.

Volkswagen AG VOW3.XE -0.03% ‘s Audi NSU.XE +0.71% luxury brand is launching next year a new compact A3 sedan that exists in large part because Audi’s target customers in the U.S. and China share a preference for the sedan profile over the hatchback look popular in Europe, said Filip Brabec, product planning manager for Audi AG’s U.S. marketing arm.

“Without the U.S. and China, the sedan would have been a much more difficult case to make,” he said.

The business case for the Lincoln MKC would also be harder to make without China. Once the No. 1 luxury brand in the U.S., Lincoln is now No. 8 here, selling through the first 10 months of this year less than a third the vehicles that U.S. luxury leader BMW AGBMW.XE -0.71% has delivered. Lincoln is almost entirely a North American regional brand, with its base in the U.S. heartland.

“We’re a challenger brand,” in the U.S., said Ford’s Mr. Farley. In China, many consumers are aware of the Lincoln brand and think well of it, Mr. Farley says, but they associate it with stately limousines. The brand’s task will be to link the compact MKC to that legacy.

Getting that right will require attention to detail, because U.S. and Chinese consumers may have similar tastes, but not precisely the same tastes. One point on which Chinese and U.S. buyers differ is wheel size, Lincoln executives say.

Americans like larger wheels, 19 or 20 inches in diameter. In China, consumers tend to prefer smaller wheels with larger sidewalls, Ms. Drake said. Lincoln has covered its bets, designing wheels for the MKC in 18-, 19- and 20-inch sizes.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

One Response to Will Shanghai Luxury Rides Rival U.S.? Car Makers Bet Buyers Want Same in China as in U.S.

  1. cr_hire_london says:

    When it comes to luxury rides buyers have different choices. Demands from a luxury vehicle can be totally different in China from America.

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