Crazy automobile market

Visitors to Beijing always remark about the horrendous traffic situation. There are seemingly millions of vehicles clogging the roads at all hours. Add this to an ineffective subway system, and it can take over an hour to just get across town.

In Shanghai, it's less of an issue because the city charges outrageous amounts for a vehicle registration/license plates -- currently about $5,000 USD! In Beijing, the fee is less onerous and there are plenty of cars and taxis to go around.

For my latest project, I have the opportunity to look at the market for luxury autos in China. So far, I have been very impressed with the Chinese appetite for foreign cars. Imported cars made by companies like Volvo, Lexus and Mercedes cost about twice the amount they do in the United States. In China, a Mercedes S600 lists for more than 1.7 million RMB - $225k USD. Yet there are still over 10,000 people per year lining up to place an order.

Of course, cars in China are a bit different, especially those that cost more than $40k. Chinese consumers like big cars, particularly cars with large rear passenger compartments -- if you can afford a nice car, you probably aren't driving it yourself. Therefore, car buyers focus less on the controls upfront but rather the experience in the back as a passenger. Also, Chinese people don't drive fast - they never get far enough outside the city or away from traffic to go Autobahn speeds. So you can end up with some relatively underpowered engines in otherwise big cars. Unlike Germans, the Chinese consumer doesn't like to "feel" the road either. They want a soft ride that makes them feel like they're sitting on a cushion. That's all fine and dandy since they aren't making high speed turns anyway.

There are locally made versions of foreign cars for sure. Volkswagen and GM both make most of their cars for the Chinese market in China. Toyota is strong as well. But what about purely local cars like the Chery and Great Wall? They are cheap; you can pick up a Chery QQ for $4000. They certainly get the job done and are very popular in Beijing. In Shanghai, since the cost of the license plate will double the overall cost, most people opt for a VW, or no car at all.