Luxury automakers turn to discounts as Chinese demand dries

Luxury automakers are now offering deep discounts to woo Chinese buyers.

After more than two solid years of double-digit growth, demand for luxury cars in China is starting to dry, forcing automakers like BMW, Mercedes-Benz and Audi to offer deep discounts on their once-popular models.

Although luxury car sales were up 29 percent in China through the first eight months of the year, that growth is a far cry from the 48 percent expansion seen during the same period a year earlier. Moreover, luxury car sales saw a dramatic drop off during the month of September, suggesting the overall market could be poised for a cool down.

As a result in the drop in demand, luxury car makers have been forced to offer heavy discounts. According to cheshi.com, a pricing guide tracking more than 3,000 dealers in the country, most Chinese BMW dealers are offering about 19 percent off the price of a 3-Series model. Discounts are even steeper at Mercedes-Benz dealers, with C-Class models going for 20 percent off. Audi has even been offering discount of 16 percent on its A6L model, which is by far the most popular luxury car in the country.

"We're in a cycle of dropping prices," said Scott Laprise, a Beijing-based analyst at CLSA Asia Pacific Markets. "Dealers are worried about sales slowing and are cutting selectively in the luxury segment. They see where the overall market is going. They want to be preventive and keep their sales going."

BMW's sales increased just 6 percent last month, compared to a 67 percent increase during the first 8 months of the year. Mercedes' sales inched forward 3.2 percent in September, well off its 41 percent growth rate during the first 8 months of the year.

China's slow growth could continue for the foreseeable future as banks cut lending and most major cities enact driving restrictions. China's second a third tier cities could prove lucrative for the world's luxury automakers, but dealer networks in those regions are still years away from viability.

1.'BMW Dangles 19%...' view