Automotive & Assembly Practice

Upward mobility: The future of China’s premium car market

March 2013 | By Sha Sha, Theodore Huang and Erwin Gabardi

Panoramic sunroofs. The latest infotainment systems. Advanced safety systems like night vision aids and attention warning systems.

Chinese consumers know what they like in a premium car and they’re buying more and more of them. Over the past decade, the market for high-end cars in China has increased at a rate of 36 percent a year, a rate that’s above and beyond the 26 percent annual growth in the overall Chinese passenger vehicle market during the same period. China is now the second biggest premium car market in the world after the United States, representing 9 percent of all passenger car sales in 2012.

McKinsey forecasts that China’s premium car market will grow at an annual rate of 12 percent through 2020, compared with 8 percent for the overall passenger car market. We forecast that sales of premium cars in China will reach three million by 2020, equaling those of Western Europe, and surpassing the 2.3 million sales expected in the US market. In fact, China may overtake the United States as the largest premium car market as early as 2016, when sales could reach 2.25 million units.

Along with the sales increases comes a rapidly changing market landscape. The older generation of premium car owners purchased vehicles mainly to reflect their social status, but the increasingly sophisticated new generation of buyers is expressing other reasons for buying premium autos. In our 2012 survey of 1,200 Chinese premium car consumers in 12 of the country’s biggest cities, 27 percent of respondents cited “self-indulgence” as the top reason to upgrade to a premium car. More nuanced responses include: the “car as my ‘business card’ for credibility,” “attracted by sophisticated functions and innovative designs,” “the car as a source of fun in life,” and “demanding excellent service.”

Some other notable findings:

  • Most Chinese families replace their cars every six to eight years. In our research, premium owners and those intending to buy premium cars said they would replace their cars two to three years faster than the average.
  • Women are playing an increasingly important role in the premium car market in China. In our survey, we found that when choosing a vehicle model, women value exterior styling, safety features, and comfort, over the attributes favored by their male counterparts (powertrain technology, socially recognized premium brands, and bigger models.)
  • China’s premium car market still presents a sizable opportunity for latecomers. For example, Japanese and US attackers have a chance to create a market footprint as long as they identify a distinctive value positioning, and then carry out a well planned channel rollout. Since major premium segments are overcrowded, new players will need to deploy a more focused segment-based approach by addressing the sporty, younger premium personality, or catering to the entry-level premium consumer.

In compiling this report, McKinsey also conducted a series of focus groups to zoom in on consumer preferences and purchasing habits. Additionally, we conducted interviews with about 60 automotive executives, dealership managers, and industry experts; carried out in-depth home and drive-along visits with individual buyers; analyzed more than 6 million Internet and microblog postings for insight into customer perceptions of the premium car market in 2012; and compared our results in China with those of a 2010 McKinsey survey of premium car customers in Germany. 

To see more insights, read the full report at McKinsey’s Greater China site.