Ghosn’s Infiniti Targeting Audi-Lexus Drivers in China

Bloomberg Business Week, August 17, 2011

Aug. 17 (Bloomberg) -- Nissan Motor Co. plans to quadruple Infiniti’s share of the Chinese luxury-auto market within five years as it rushes to make up a “ridiculous” amount of time lost to Volkswagen AG’s Audi and Toyota Motor Corp.’s Lexus.

Chief Executive Officer Carlos Ghosn has set a target of winning at least 8 percent of the luxury segment in the world’s largest auto market by 2016. Infiniti has 2 percent now. Market leader Audi has 34 percent while Lexus has 8 percent, according to industry researcher J.D. Power & Associates.

Nissan’s strategy to boost sales includes doubling the number of Infiniti dealers this year, adding five product lines over five years and airing its first TV commercials in a nation where primetime audiences can exceed 500 million. The Yokohama, Japan-based company is also considering production in China to eliminate tariffs of 25 percent on imported cars.

“We entered the China market even later than Taiwan and South Korea, and that’s very ridiculous to anybody who has a bit of knowledge about the industry,” Allen Lu, who left Ferrari SpA to become managing director of Infiniti’s China unit last year, said in an interview in Beijing. “But, it’s like running a marathon -- you can’t tell who will win after just 10 kilometers.”

Nissan, Japan’s second-largest automaker, aims to more than triple worldwide Infiniti sales to 500,000 a year by March 2017, taking about 10 percent of the global luxury-car market. China became Infiniti’s second-biggest market after the U.S. last year, according to Lu. The brand isn’t sold in Japan.

‘Good Momentum’

“We have a good momentum in China and we should continue,” Ghosn said July 26 in Beijing, where Nissan unveiled its mid-term China business plan.

Infiniti trails Audi, Munich-based Bayerische Motoren Werke AG and Daimler AG’s Mercedes-Benz in China. BMW has a 22 percent share of the luxury-car market and Stuttgart-based Mercedes has 14 percent, according to J.D. Power.

Infiniti’s China sales were 11,513 last year, doubling from the year before, though still only 5 percent of Audi’s. Lexus sales rose more than 55 percent to 52,933 units in 2010, according to Toyota, Japan’s largest automaker.

Audi also ranked first in a new-vehicle sales satisfaction survey released Aug. 15 by J.D. Power. Nissan’s Chinese venture Dongfeng Motor Co. came second. The survey was based on responses from 11,496 owners and covered 57 passenger-vehicle brands.

‘Real Challenge’

“The real challenge for Infiniti is to get on the consideration list for luxury-auto shoppers in China,” said Bill Russo, a senior adviser at consulting company Booz & Co. in Beijing.

China has more than 1.1 million millionaires and an economy that expanded at 9.5 percent in the second quarter, so “it should be possible for Infiniti to carve out a piece of this expanding pie,” he said.

Toyota declined to comment on the challenge posed by Infiniti, saying in an e-mail that “we respect all competitors.”

Honda Motor Co., Japan’s third-largest automaker, is preparing several new Acura luxury models for the U.S. and Chinese markets, Chief Financial Officer Fumihiko Ike said in June.

Late Start

Infiniti got a late start in China, entering the market in 2007, about three years after Lexus opened its first dealerships there and more than a decade after Audi began local production. The two Japanese luxury units don’t have plants in China, which means customers pay import duties that boost prices.

The Infiniti M25 sedan starts at 498,000 yuan ($78,000) and a Lexus ES350 costs from 545,000 yuan, according to pricing data compiled by Sina.com. That compares with 355,000 yuan for an Audi A6 and 418,600 yuan for a BMW 5-series, both of which are assembled in China.

“Brand loyalty in China is not strong,” Lu said. “Everyone in China made their wealth in the past 20 or 30 years, and when people have all this money and don’t know where to spend it, that’s a great opportunity.”

The success of Infiniti may hinge on manufacturing vehicles in China, said Klaus Paur, Shanghai-based managing director for Greater China at Synovate Motoresearch.

Local Production

Ghosn said in June that Nissan plans to make Infiniti cars in either the U.S. or China. Ghosn and Lu declined during separate interviews last month to comment on whether Infinitis will be made in China.

“The visibility of Infiniti-branded cars has to be increased,” Paur said. “This requires higher volumes that can only be achieved with local production.”

Ghosn is counting on growth in China to help make Nissan Japan’s most profitable automaker for the first time since at least 1992. The carmaker’s Dongfeng venture, which makes Nissan- brand cars, has announced plans to invest 50 billion yuan by 2015 with the aim of raising annual auto sales to more than 2.3 million from 1.3 million.

Infiniti has stepped up its marketing in China, airing its first TV commercial last September and participating in more than 50 local auto shows, Lu said. Sebastian Vettel, the Formula One champion, drove a 5.0-liter V8 Infiniti FX50 and a 3.7-liter V6 Infiniti G37 around a test track in Shanghai in April as part of Infiniti’s sponsorship deal with the Red Bull team.

The number of Infiniti dealers will double to 50 this year, with a five-year target of 150 covering all major cities, according to the company. Five new product lines will augment the current QX, FX, EX, M and G-series vehicles, and department heads drive Infiniti cars to meetings instead of other brands.

“You eat your rice mouthful by mouthful,” Lu said. “We’re going to take it step by step.”

--With assistance from Makiko Kitamura in Tokyo. Editors: Chua Kong Ho, Michael Tighe

To contact the Bloomberg News staff on this story: Tian Ying in Beijing at ytian@bloomberg.net

To contact the editor responsible for this story: Chua Kong Ho at kchua6@bloomberg.net

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