From 350,000 to 170,000, why did the prices of Mercedes-Benz, BMW and Audi all drop this year?

This article mainly analyzes the large-scale price reduction phenomenon of traditional luxury car brands such as Mercedes-Benz, BMW, and Audi in the Chinese market in the first half of 2024, as well as the reasons and impacts behind it.

30% off for the Tiger and 50% off for the Leopard, and a 100,000 yuan reduction for the Mercedes-Benz C. The BMW I3, which used to cost 350,000 yuan, can no longer be maintained. Nowadays, the "bare car price" in some cities is only 170,000 yuan, with the highest discount of 180,000 yuan. The inverted price of the car and the discount exposes the embarrassment of the current luxury car market. BMW's 2023 financial report shows that the BMW Group's annual revenue exceeded 1.2 trillion yuan, and its automobile profits soared. BMW expects to sell more than 500,000 all-electric vehicles in 2024. As BMW's cheapest pure electric car, it is normal market behavior for I3 to reduce prices in exchange for volume. But the guide price and the discount price are cut in half, and it can be seen that BMW is also anxious.

On the one hand, domestic cars are getting more and more expensive. Ideal, NIO, and Zeekr, which are priced at RMB 300,000, have become regulars on the luxury car sales list, and BYD, which is priced at RMB 1 million, is also trying to attract consumers' attention. On the other hand, traditional luxury brands have seen a collective price drop. The Porsche Taycan, which was reduced in price as soon as it was launched, made people see the "Porsche speed", but it still couldn't stop dealers from collectively turning against it because of low sales. The Cadillac CT4, once a second-tier luxury car with longitudinal rear-wheel drive at the RMB 250,000 level, has now dropped sharply to RMB 140,000, but there are still two years of inventory that cannot be digested.

Luxury brands have achieved certain results by trading price for volume. In the luxury car list last week, Mercedes-Benz surpassed Tesla to rank second, and BMW became first . Audi barely squeezed into the "10,000-car club" with 13,000 vehicles sold, barely maintaining BBA's first echelon in the luxury car field. The second echelon is occupied by domestic new energy vehicles such as Ideal, Weilai, and Zeekr. Second-tier luxury brands Volvo and Lexus, as representatives of second-tier luxury cars, have fallen to the third echelon in terms of sales. I'm afraid only the brands themselves know the taste.

The sharp price cuts of traditional luxury cars are a chain reaction: the sluggish macro-economy has caused consumers to tighten their purse strings or choose domestic new energy vehicles that are available in large quantities. The decline in sales has led to a backlog of inventory at dealers, and coupled with the brand's own strategic adjustments, such as the release of new cars and expansion of market share, old models have been forced to reduce prices for promotions. The new round of price cuts will bring about consumers' wait-and-see attitude, which will continue to stimulate dealers to reduce prices, and ultimately lead to a collective price plunge of tens or even hundreds of thousands of yuan for traditional luxury car brands.

In the era of gasoline cars, luxury cars have stronger power, more advanced technology, more spacious space, more comprehensive configuration and higher prices than medium and large cars. They are the culmination of the automotive industry. Now the price of traditional luxury cars has fallen to the same level as ordinary B-class cars for family use. Can the configuration, space, technology and power still represent the "culmination" of the automotive industry?

1. Traditional luxury cars have frequent quality problems

The 2024 CCTV 3.15 Gala exposed the problem of the drive shaft of some BMW models . Although some 4S stores promised to replace the drive shaft for free and provide 2,000 yuan vouchers as compensation, they did not admit that this problem was a design or manufacturing defect. For the BMW 5 Series with an average price of 450,000 yuan, replacing the drive shaft is equivalent to a major overhaul, especially for car owners who have just picked up the car. The major overhaul means that they will have to bear a significant loss of value retention rate as soon as they pick up the car. This is the main reason why the car owner finally made a scene at the CCTV Gala. Luxury car owners are rich but not stupid. Relying on 2,000 yuan vouchers to make up for hundreds of thousands of losses is not what BMW should do.

But then, BMW rejected the user's request for a car return, saying that the problem could be solved by repairs. BMW would bear the repair costs, but BMW did not mention the loss in value retention rate from dismantling and repairing the car in its announcement, which disappointed consumers.

Mercedes-Benz is not much better. Take the Mercedes-Benz E-Class, C-Class, and GLC SUV as an example. After being produced in China, Mercedes-Benz officially replaced some materials of several models from aluminum alloy to steel under the slogan of "reducing the maintenance costs of Chinese consumers." This is commonly known in the industry as "aluminum for steel."

"Domestic car models will have their bodies lengthened, and when the body material is replaced with steel, the weight of the entire vehicle will increase significantly, which will bring quality risks to the vehicle." A technician at a repair shop told the author that many Mercedes-Benz owners will replace the lower chassis parts with stronger materials at their own expense after picking up their cars because they are scared by the "broken axle incident."

In 2019, Mercedes-Benz announced the recall of 290,000 Mercedes-Benz E-Class sedans due to "shock absorber front fork fracture", commonly known as broken axle. This left a shadow on Mercedes-Benz owners.

Due to the reduction in body materials, domestically produced Mercedes-Benz cars have experienced serious problems such as shock absorber breakage, abnormal brake noise, and engine explosion. They even set a record of recalling nearly 800,000 problematic vehicles 14 times in the second half of the year .

"Mercedes-Benz's quality system has collapsed in China," said analyst Ming Yang. "Mercedes-Benz invented the car. But it has not solved the most basic quality problems of fuel vehicles in 100 years. Judging from the recall incidents of Mercedes-Benz in the past three years, Mercedes-Benz has problems with fuel pumps, shock absorbers, interior odor and other aspects. The three core components of the engine, gearbox and chassis have all been recalled on a large scale. This is not just a problem of domestic Mercedes-Benz reducing its specifications, but a decline in Mercedes-Benz's car manufacturing level. Mercedes-Benz of Germany should be held responsible for the design defects."

"Quality is not guaranteed, arrogance becomes a habit" has become a true portrayal of the after-sales service of traditional luxury car brands. It has even become a routine . Some media have summarized the problem of passing the buck in the after-sales service of traditional luxury cars, "problems occur - consumers negotiate with 4S stores - keep the car for observation - observation is fruitless - consumers ask for a refund/exchange - ignored". The general idea is that the manufacturer pushes the problem to the 4S store, and the 4S store pushes the problem to the manufacturer. After a long period of waiting for observation and repair, the consumer can't wait to return the product, but the manufacturer ignores it or gives a voucher like BMW.

"This is what it means when a big store bullies its customers," said Ming Yang. "Traditional luxury car brands usually don't get too close to consumers and deliberately create a sense of distance. For the sake of profit, 4S stores will hide the problem of the vehicles if they can, and if they can't, they will pass it on to the manufacturer. On the one hand, the manufacturer has limited authority in the Chinese branch and has no right to deal with large-scale public opinion independently, so it needs to report to the German headquarters. On the other hand, they lack channels to communicate directly with consumers. When problems arise, they will hide if they can, and if they can't hide, they will wait for a recall. They can never stand with consumers to solve problems together."

The China Automobile Quality Network's "2023 Luxury Brand Mid-to-Large and Large Car Quality Ranking" shows that the quality of many models of Audi, BMW, and Mercedes-Benz is below average. Even Lexus and Genesis, which are known for their quality, have frequent quality problems .

In 2023, Lexus recalled 101,875 Lexus ES200 vehicles in the Chinese market. The reason for the recall was that "the welding part of the large flange of the exhaust manifold was cracked, causing exhaust gas leakage." It is understood that all Lexus vehicles are imported from Japan. In addition, the Japanese Ministry of Transport recently reported that five automakers including Toyota had collective fraud problems. The sales of the Lexus brand, which have been declining in the Chinese market, will be tarnished again.

"Models below the average have more complaints about transmission, braking and steering system-related failures, and have higher potential safety risks. In addition, some models have triggered multiple centralized recalls in 2023 due to vehicle defects, which also affected the overall quality evaluation of the models," China Automobile Quality Network analyzed.

2. The collective price cuts of luxury cars are just a shot of sales stimulant

Tang Jin, a senior researcher at the Business Solutions Department of Mizuho Bank, believes that in recent years, with the development of electrification and intelligent technology, the advantages of Japanese automakers in the era of fuel vehicles, such as "durability, fuel efficiency, and controllability", are disappearing. The arrogance under the halo and the anxiety caused by the rise of new energy vehicles are one of the inducements for this collective fraud, which may lay the groundwork for the decline of Japan's automobile manufacturing industry.

But domestic scholars expressed different opinions. He believes that traditional luxury brands, including Japanese luxury cars, should "strengthen their own strengths". The rise of China's new energy vehicles is only an external factor. The shortcomings in configuration, space, technology, power and even marketing have caused the current decline of traditional luxury cars in the domestic market. "Relying only on price cuts to increase sales without focusing on finding the reasons from within is destined to be just a shot of sales stimulant and unsustainable."

In terms of marketing, traditional luxury brands are old-fashioned and rigid.

A car blogger on Xiaohongshu was recently warned by Cadillac, "Stop talking about bathing-related topics." The blogger claimed to have a partnership with SAIC-GM, and said that GM's Cadillac public relations department had held a special meeting with KOLs, asking them not to mention the famous online meme and to promote the brand's sporty and rear-wheel drive attributes.

Xiaomi's marketing manual "Sense of Participation" states that the core of the sense of participation is word of mouth and user trust. Building a sense of participation means getting users involved and building a brand that is touchable, ownable, and grows with users.

Obviously, Cadillac does not like the label of bathing, which is full of Chinese people's sense of participation. It does not want to increase the sense of participation through bathing, but in April, it released a set of new car Reego ads that dragged down its competitors, hoping to increase the sense of participation and enthusiasm by touching on its competitors to pull down the fans of both sides. Behind this excessive effort is the problem of GM China's marketing ideas.

"SAIC had the highest sales expenses among domestic automakers last year, and the budget given to SAIC-GM Cadillac was also relatively ample, but it was spent in the wrong place." A GM salesperson told the author that GM China is still the same as before, willing to hire a public relations company, shoot 4A, and then find traditional media or vertical media for placement. The terminal will give some discounts, and a round of sales budget will be spent. As for the results, no one cares about the results. "The public relations company is responsible for spending the budget of the client, and the 4A company is responsible for shooting high-end advertisements for the client. It's useless. In the end, it still depends on the terminal to reduce prices. There is no sales even after the price reduction, so the higher-ups thought of doing Internet marketing. The problem is that the budget has been spent, and they can't afford to hire a big V, so they can only hire a small V, and the influence is not enough. Now they force sales individuals to become bloggers and Internet celebrities. They only know how to suppress tasks, they can't say this or that, and they can only publish according to the caliber of public relations, messing around."

"Sales are not equal to marketing." A blogger said, "Traditional luxury car brands are basically domestic branches. The brand headquarters will give sales targets, and some will also designate exclusive advertising companies and channels. These are quantifiable and can be reported to the headquarters. Social media cannot quantify sales data in the short term. In the past, only domestic cars and new brands were willing to invest heavily in social media, and luxury brands looked down on it. But now it has to be done, because no one reads traditional media, and it is useless to invest more." He gave an example. He is a Porsche owner who has had the car for six years. This year, for the first time, he received a new car advertisement pushed by Porsche on the WeChat customer service terminal. "It's a good thing not to disturb users, but don't be too old-fashioned."

If marketing shortcomings can be addressed by increasing social media investment and increasing fan engagement, then the real product-related shortcomings such as configuration, space, technology and power are the problems that traditional luxury brands urgently need to solve .

"What era is it now? You still make money by selling configurations." Xiaoxiang is a partner of a startup company and recently considered buying a commercial vehicle for the company. He first looked at a Mercedes-Benz, but was told that the rear-wheel steering function and the car computer would be charged. He then turned around and ordered an Xpeng X9 because "Xiaopeng's rear-wheel steering is free."

"In fact, many of the fashionable configurations promoted by new energy vehicles now, such as aviation seats, rear-wheel steering, HUD, fragrance systems, and car TVs, were first developed by gasoline car brands. It's a pity that users have to spend money to choose these. But now, new energy vehicles have these configurations as standard." He has learned about Xiaopeng's financial report, which shows a loss of 110,000 yuan per car. He believes that if Xiaopeng starts selling configurations like traditional luxury cars, the revenue from optional configurations alone will be more than 110,000 yuan. He also said that he cared about brand issues in the past and thought it was better to use Mercedes-Benz when receiving customers. Recently, after watching Zhou Hongyi's happy acquisition of Zeekr 009, he felt relieved, "Billionaires all buy domestic new energy vehicles, so what am I?"

Even if you pay more for the configuration, you may still get a reduced-configuration version .

A designer who bought a new Mercedes-Benz C260 RDNA is very troubled recently. He listened to the salesperson at the 4S store and spent 8,000 yuan to buy a Berlin speaker for his car, but he felt that the sound was not as clear as the Infinity on his previous Great Wall car. So he posted a question, and was told by car friends that what he bought was a "small Berlin" with only 13 speakers, while the "big Berlin" on the Mercedes-Benz S is the real Berlin, with 27 speakers. He is now struggling whether to go to a modification shop to modify a set of disassembled car speakers, but he is reluctant to disassemble the new car, so he is very entangled.

This is an era where less than RMB 100,000 can give you the space of a B-class car, and RMB 150,000 can achieve a 4.5-second 0-100km/h acceleration level, matching the power acceleration level of million-dollar luxury cars of the past. This is an era where batteries, motors and electronic controls are replacing engines and gearboxes, and an era where air suspension, double wishbones and all-aluminum bodies are being marketed down to the RMB 200,000 level.

In the past, only traditional luxury cars with a price of more than 500,000 yuan had these features, and you had to pay more for more configurations. Now, domestic new energy vehicles have made optional features standard, and the price is half the price . Faced with increasingly pragmatic consumers, how to choose between real configurations and the halo of the car logo, consumers already have the answer in their minds.

It now seems that what traditional luxury car brands lack is not technology, but the courage to make profound changes, not just lowering prices. Brand premium is not anchored to price, but to real reputation.

3. In addition to price cuts, beware of cost traps

Traditional luxury cars are caught in a collective quality crisis. Lexus, once the king of luxury car quality, is caught in a recall crisis. New energy is in front, and affordable cars are constantly hitting the bottom. In addition, the power, space, configuration, and technology that luxury cars used to be proud of are being fully impacted by new forces in this era. It is inevitable that traditional luxury cars will reduce prices to maintain sales. However, price wars may bring many sequelae, one of which is the cost trap.

The cost trap refers to the excessive pursuit of cost reduction and efficiency improvement, even in areas where cost reduction should not be done, such as product materials and quality inspection, which are considered cost optimization . This ultimately leads to a decline in product quality and sales. If costs are cut and prices are reduced, product quality will continue to decline, and the product will eventually be completely eliminated by the market. For example, Mercedes-Benz replaced aluminum with steel and Toyota neglected quality inspection, which are typical examples of reducing product quality to reduce costs. This is a cost trap.

Whether luxury cars sell configurations or replace aluminum with steel, in essence, they still increase profits without increasing the price of the bare car, which is understandable. However, in the face of new forces that are fully equipped as standard and domestic cars with increasingly better quality, traditional luxury cars have come up with not-so-good cost-cutting and efficiency-increasing plans, which will inevitably lead to cost compression at the production and after-sales end in terms of employee benefits, quality inspection and audit, and after-sales buck-passing. However, in this way, the service of traditional luxury cars with poor quality has become a problem, which is bound to make consumers more alienated from the brand. When price cuts can no longer stimulate consumption, brand premiums will also disappear.

In this Japanese car fraud incident, Akio Toyoda said that the short delivery time and repeated rework caused too much pressure on the employees in the final certification test stage. The implication is that "the quick carrot will not be cleaned", because of the large production volume, the workers did not have time to test, which led to the problem vehicles entering the market.

It was also reported that Xiaomi's car production capacity was insufficient, and the factory was hiring workers in two shifts, with workers working 10 to 11 hours a day. Immediately, some netizens commented: "With so many orders and good business, why not three shifts? Why do they have to work overtime?"

According to a research report by Mordor Intelligence, China's high-end car market has grown at an astonishing rate of 36% per year over the past decade, exceeding the 26% annual growth rate of China's overall passenger car market. These ten years were the decade in which traditional luxury brands made a lot of money in China, and also the decade in which domestically produced cars made a breakthrough in the high-end market.

In the Chinese market, more and more people are buying luxury cars, and car prices are getting more expensive, sales are increasing, and quality is getting worse . Toyota and Lexus have poor quality due to high sales. Even the simplest exhaust pipe can have assembly problems and lead to large-scale recalls. This is actually a reminder to friendly companies that even if Toyota has strong quality control, if it cannot handle the supply relationship between sales and production, its technology will be deformed and its quality will decline. In today's involutionary price reduction trend, will cost pressure lead to more serious product defects and reduced worker welfare?

As Zeng Qinghong, chairman of GAC, said, in the face of complex situations, what needs to be emphasized is long-termism, not the immediate "rolling". "'Rolling' is not a solution. The purpose of an enterprise is to make a profit, thereby contributing to the country and society in terms of taxation and employment.

GAC is a major taxpayer in Guangdong Province, and its employee benefits are at the forefront. It strictly implements the 8-hour work system, and workers work in three shifts. GAC's quality has always been at the forefront of domestic cars. In this Japanese car fraud storm, GAC Toyota immediately issued a notice stating that there are no quality problems with Toyota produced domestically, which shows that GAC treats its employees well, and ultimately reflects on product quality.

However, Zeng Qinghong said at the meeting that he was very sad about GAC's layoffs this year.

Competing for price is not long-termism, but competiting for employee benefits is. After all, cars are made by workers. Only when workers are happy at work can they make good cars, and they cannot always be treated as costs to be optimized.

References:

2023 China Luxury Car Quality List https://www.dongchedi.com/article/7339794788071244322

In the ranking of automobile sales in May, BYD's lead narrowed sharply, while Mercedes-Benz surpassed Tesla http://t.cn/A6HerKyP

BMW, Porsche and other luxury cars have seen a "cliff-like" price cut! Dealers: Selling at a loss https://finance.sina.com.cn/jjxw/2024-06-07/doc-inaxwhnc3608152.shtml

The 2024 315 Gala revealed the BMW 530Li transmission shaft abnormal noise problem, and the rights of car owners are still pending https://new.qq.com/rain/a/20240316A02AJF00

How can the automotive industry "roll up" more world-class brands? At the "China Automotive Chongqing Forum", experts and experts offer suggestions for the development of the industry https://news.cqnews.net/1/detail/1248534736999149568/web/content_1248534736999149568.html

Author: Xing Shubo