SHANGHAI -- While dozens of mass-market brands brawl to gain share in China's automotive market, the luxury segment is dominated by just three.
Audi, BMW and Mercedes-Benz control nearly 76 percent of China's luxury car sales, and their market share over the next few years may even grow.
Why? The German brands enjoy two huge advantages: lower prices and products that have been customized to satisfy Chinese tastes.
First, the German automakers have stretched the wheelbase of their products to satisfy wealthy Chinese customers who prefer to sit in the spacious rear seat of their chauffeured car.
Audi AG has two "stretch" models on sale in China: the A4L and A6L. Meanwhile, BMW AG has launched an extended-wheelbase version of its 5-Series, and Mercedes-Benz sells a lengthened E-Class sedan.
These models were developed specifically for the Chinese market, and they have contributed hugely to sales.
For example, Audi sells 11 models in China, but the A4L and A6L stretch models account for 60 percent of Audi's total sales.
Second, the German makes enjoy big price advantages over imported brands because they produce cars in Chinese assembly plants. The Audi A4L, A6L and Q5; BMW 3-Series and 5-Series; and Mercedes C-Class and E-Class all are built in China.
Except for the Audi Q5 and Mercedes E-Class, the other five locally produced models are among the 10 best-selling luxury models in China.
By contrast, luxury brands such as Lexus, Infiniti, Jaguar and Land Rover are produced overseas.
To get an idea of the high tariffs on imported vehicles, consider the huge difference in the price of the locally produced Mercedes C300 and the imported version.
The made-in-China model has a starting price of 478,000 yuan ($71,700), well below the imported version's price tag of 548,000 yuan.
Luxury brands that import all their vehicles suffer a severe price disadvantage. And if they also lack products customized to cater to local tastes, they won't make much progress in the vast Chinese market.
To be sure, some non-German luxury brands do sell locally built stretch models in China, such as the Cadillac SLS (a stretch version of Cadillac STS) and Volvo S80L.
But these models are not selling well due to low brand recognition and the lack of an extensive dealership network. Cadillac is trying to fix that problem by expanding its dealer network, while Volvo's owner,
Zhejiang Geely Holding Group Co., plans to build two Volvo assembly plants in China.
But the German brands aren't sitting still. Over the next two years, Audi, BMW and Mercedes-Benz plan to launch additional extended-wheelbase models in China.
That means the gap between the German brands and their competitors will only widen instead of shrink.