Urged to Buy Local Cars, Chinese Officials Prefer Audis

Guidelines on Permitted Brands and Prices Favor Local Automakers

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China's central government is pressuring bureaucrats to buy locally branded cars to help domestic automakers and cut lavish spending of taxpayers' money.

That's unless you are a high-level government official with an Audi A6L.

At Beijing's Great Hall of the People on Tuesday, where Premier Wen Jiabao was addressing 3,000 delegates, only those senior enough could park in the nearby north gate and southern courtyard. The scene: dozens of gleaming black sedans made by Germany's Audi waiting for their VIP occupants to emerge from the National People's Congress.

"We should try to use Chinese cars when possible and actively advocate our officials to use them," said Guo Gengmao, governor of central Henan province, when asked whether he will swap his Audi for a local brand. "But we should do so in a practical way and switch cars when we need to replace the old ones. Otherwise, it's a big waste to replace cars when they're still good to use."

While civil servants in the United States, Japan and South Korea typically ride in local cars, Chinese senior leaders stand out in their preference for foreign brands such as Audi. That's not helping Chinese automakers, whose combined market share of domestic sales has declined to a four-year low.

Audi has benefited from its image as the car of choice for China's political elite by targeting state-owned company bosses and business executives. That has helped the automaker cement its position as the top premium brand in the world's largest vehicle market.

Led by China FAW Group Corp., maker of the Chinese Red Flag brand of luxury vehicles, local automakers are pushing to win government sales to burnish their brands.

"If the top leaders started to switch to Chinese brand cars, junior officials and bosses of state-owned companies would follow overnight and that would be a great push for state-owned automakers," said Chi Yifeng, head of the Beijing Asian Games Village Automobile Exchange, a dealership in the capital.

"People have been waiting for detailed policies of promoting domestic brands for the government fleet," Mr. Chi added.

Local automakers could use the help. The combined market share for Chinese sedans and compact cars fell to a four-year low of 28% in 2012, according to data compiled by the state-backed China Association of Automobile Manufacturers.

No Chinese brand was among the 10 top-selling passenger models last year, the data showed. Chinese carmakers risk falling further behind as foreign automakers expand their upscale product lineups with attractively priced crossovers and compact sedans.

Audi dominated the premium vehicle segment in China with a 30% share last year, followed by BMW at 24% and Mercedes-Benz at 21%, according to researcher IHS Global Insight.

Audi is stepping up efforts to transform its image as a brand for Chinese bureaucrats, a task that has taken on added urgency as Communist Party chief Xi Jinping pushes to reduce government expenditures.

Audi says its association with the government is limited. Private individuals now account for nine of every 10 customers in China, said Luca de Meo, member of the management board at Audi, during a January interview in Beijing.

Last month, Audi opened its first interactive digital showroom in Asia in a Beijing shopping mall to reach out to younger consumers. The German automaker also has introduced SUVs and sports cars such as the TT and R8 to expand its offerings beyond the A6 sedan.

Some Chinese officials have gone ahead to use local brands, mostly by automakers headquartered in their respective jurisdictions. Wang Rong, Communist Party secretary of the southern Chinese city of Shenzhen, started using BYD Co.'s e6 electric car last year.

His counterparts in Beijing, municipal party secretary Guo Jinlong and Mayor Wang Anshun, have expressed interest in replacing their Audi sedans with BAIC Motor Corp.'s Senova model when it becomes available in the second quarter, according to BAIC VP Dong Haiyang.

"To make the Chinese auto brands more competitive, the industry needs support from the whole society, especially the government officials, who should be role models and use local-brand cars," said Cheng Xiaodong, head of vehicle-price monitoring at the National Development and Reform Commission, the nation's top economic planner.

Chinese automakers from FAW to SAIC Motor Corp. have stepped up development of premium models, anticipating that the government will lend more support to help them revamp an image as producers of cheap, utilitarian cars.

In 2011, the central government issued guidelines that lowered the price limit on cars used for routine official business by 28% to 180,000 yuan. The lower limit would appear to eliminate the Audi A6L, China's best-selling luxury car, which starts at 287,300 yuan.

Three months later, the industry ministry issued a proposed list of 412 models approved for purchase by state agencies -- a list that excluded foreign brands. The fine print: Those regulations don't apply to cars used by senior government and Communist Party officials.

Detailed rules probably will be issued after the Congress meets this month, providing a big boost to FAW, SAIC and other local automakers, the Beijing Times reported on Feb. 28, without saying where it got the information.

--Bloomberg News--

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