For years, Porsche has been known as the most profitable car brand, with its dealers thriving on strong sales. However, recent tensions between Porsche China and its dealers have erupted into a full-blown protest. The issue? Porsche China has been pressuring dealers to meet sales targets by stockpiling inventory, leading to strained relations and dealers demanding changes in management.
On May 27, Porsche China issued a joint statement with its authorized dealers, acknowledging the unprecedented changes in the auto industry and the complex challenges they face together. The statement emphasized the need for long-term, trust-based dialogue to tackle issues ranging from business policies to the shift towards electrification.
This conflict is a snapshot of the broader struggles luxury car brands face in China’s evolving market. Changing price structures and the rise of local electric vehicle brands have made it tough for luxury brands to maintain their market share.
The Dealer Protest
Porsche, famous for its high performance and luxury status, has seen its sales in China decline over the past two years. Despite a 3% global sales increase in 2023, deliveries in China dropped by 15%, marking China as the only region with a downturn. This year, the first-quarter deliveries in China fell by 24%, exceeding the global average decline.
To attract customers, Porsche has had to offer significant discounts, squeezing dealer profits and leading to protests. At a Porsche China dealer conference, major groups like New Forta, Better Life, and Meidong demanded compensation for new car sales losses. For instance, Meidong Group, which owns 16 Porsche dealerships, requested subsidies to cover a 1% gross margin loss, while others asked for 4%.
These dealer groups have seen significant profit declines, with Meidong’s new car sales margin falling by 116.3% and Better Life’s net profit plummeting by 65.2% in 2023.
Reasons Behind the Decline
Porsche China President Kjell Gruner attributed the sales drop to three main factors: the transition between old and new Cayenne models, intense price competition in China’s car market, and the reallocation of some inventory to other markets.
Globally, Porsche is also facing challenges. In the first quarter of 2024, global deliveries dropped by 4%, and revenue fell by 10.8% to 9 billion euros. Automotive sales revenue decreased by 12.7%, with gross margins dropping by 30.3%.
Broader Luxury Car Market Struggles
Porsche is not alone in this struggle. Other luxury brands like Bentley, Lamborghini, and Ferrari are also experiencing sales declines in China. For instance, Bentley’s deliveries dropped by 18% in 2023, while Lamborghini’s sales in China fell by 17%. Ferrari saw a 5% decline in China, despite a 3% global sales increase.
Experts attribute this slump to global economic instability and reduced consumer purchasing power. The high deposit requirements for luxury cars also mean many orders are not finalized, further dampening the market.
Competing with Local Brands
Chinese high-end brands like BYD, GAC Aion, and others are making significant strides, offering models that compete directly with traditional luxury brands. These local brands are gaining traction with their advanced technology and competitive pricing.
Support from Mainstream Luxury Brands
Mainstream luxury brands like BMW and Mercedes are also feeling the pressure and have started offering significant subsidies to their dealers. BMW, for instance, recently introduced a range of support measures, including price reductions and financial assistance to help dealers cope with market challenges.
The Path Forward
Luxury and ultra-luxury brands are actively seeking ways to adapt. Many are accelerating their shift towards electric vehicles (EVs). For example, Porsche aims for over 80% of its cars to be electric by 2030, while Ferrari and Bentley have similar electrification goals.
To compete with local brands, these luxury automakers are also focusing on automotive intelligence to meet the growing demand for smart cars in China. By combining brand allure with market-savvy innovations, luxury car brands hope to reclaim their position in this competitive market.
