Forget the Chinese on bicycles - they’re now in Bugattis

Friday, 22 July 2011 From Issue Vol. XIX No. 29 By  Dr. Iain Corness

Apparently the new Chinese traders are so rich, the German automakers are ramping up production of the luxury models as demand is greater than supply.

Daimler AG (Mercedes-Benz), and Volkswagen AG, which makes Audi, Bentley and Bugatti, have outlined nearly $20 billion in investments in China for the near future.

Volkswagen, one of the first foreign automakers to establish a joint venture in China, plans to invest around $15 billion in China between now and 2015.

China by bicycle China by bicycle

VW will build two new plants with its partners, FAW and Shanghai Automotive Industry Corp. (SAIC), which will expand its existing production capacity in China to 3 million vehicles.  It is also planning to launch two electric cars in China.

The reason for all this is simple.  China is now the biggest market for VW, selling 1.92 million in 2010 and expecting this will increase to 2.2 million vehicles this year, despite some fluctuations in the global market.

Daimler intends to invest $4.2 billion in the next few years, and plans to increase the number of models it builds in China with its joint venture partner Beijing-based BAIC Group.

Volkswagen Chief Executive Martin Winterkorn said, “The Volkswagen Group intends to play a major role in shaping this growth, with new environmentally compatible models and the expansion of local production capacity.”

But it is not just Mercedes-Benz and the luxury VW brands that are riding this wave of demand.  BMW reported a 61 percent rise in half-year sales in China too.

Luxury car sales increased close to 30 percent in China in the first five months of the year, according to consulting firm J.D. Power and Associates, but this production level will ease, but positive growth is still expected.  One market analyst, IHS Automotive, expects annual light vehicle sales to increase in China to 30 million by 2020, a 72 percent increase from 2010 sales levels.

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