Volvo Seen Doubling Sales Helped by Air Bag for Pedestrian

Bloomberg News, March 8, 2012

A Volvo V40 automobile, owned by Zhejiang Geely Holding Group Co., is seen on display on the second press day of the Geneva International Motor Show in Geneva.

Volvo Car Corp. (175) showed a five-door hatchback this week in Geneva featuring the world’s first pedestrian air bag. The Swedish carmaker is counting on such innovations to burnish its safety image and help double sales.

The V40, Volvo's first model designed under owner Zhejiang Geely Holding Group Co (GEELZ). of China, has an air bag that ejects from the hood to protect pedestrians from injury. It also has a backswept headlight and panoramic glass roof to give it a sporty look.

Volvo is targeting the hatchback at potential buyers of Bayerische Motoren Werke AG (BMW)'s 1-series, Audi AG's A3 and Daimler AG (DAI)'s Mercedes-Benz A-Class as the carmaker tries to push into the premium market. Volvo will need to fill other gaps in its product lineup and replace aging vehicles to meet a target of lifting annual volume to 800,000 by 2020.

Old models and holes in Volvo’s product portfolio highlight the high development costs in the auto industry and the difficult choices facing an automaker that is not part of a larger group. Volvo sold 449,255 cars last year. That compares with 1.3 million at Audi, itself a unit of Volkswagen AG (VOW), which delivered 8.27 million vehicles across all its brands.

The V40 “is an important model for the brand as it further progresses along the road to making Volvo a more viable premium- brand competitor,” said Jonathon Poskitt, head of European sales forecasting at LMC Automotive in Oxford. “For Volvo to really take the fight to the likes of Audi and BMW, it will need to look to roll out this new, sharper styling to the replacements that come over the next few years.”

Volvo, which will start building the car in May, targets annual sales of 90,000, mainly in Europe, where demand is strongest for small cars in large urban areas. The model won’t be sold in the U.S.

Luxury Sedan

Volvo dealers are hoping for a vehicle at the other end of the spectrum for American buyers: a big, luxurious sedan that can challenge BMW’s 7-series, Audi (VOW3)’s A8 and Mercedes S-Class.

“We’re missing that next step up in the luxury line,” said Randy Pullen, the general manager of a Volvo dealership outside Atlanta, Georgia. “We have to create a broader selection of product.”

Gothenburg-based Volvo is also missing a subcompact car and facing a growing need to replace aging vehicles. The XC90, its largest crossover, will be 12 years old when it’s renewed in 2014. The S80, its biggest sedan, will be nine years old when it’s revamped in 2015.

‘Core’ Cars

The S40 and V50, Volvo’s smallest sedan and station wagon, are both eight years old, and the company has yet to announce when they will be replaced. Volvo last year pulled them from the U.S. market because of poor sales.

The average lifespan for models in Europe is about seven years, according to Michael Tyndall, an auto analyst at Barclays Bank in London.

“We have not made a decision on whether to go further up and down” in the various car segments, Chief Executive Officer Stefan Jacoby told reporters March 6 at the Geneva auto show. Volvo intends to focus in the coming years on “core” cars, such as the midsize S60 sedan and crossover XC60, its two bestsellers, he said.

Volvo is talking with other carmakers about sharing development costs for future compact cars, Jacoby said, declining to identify the candidates.

China Appeal

In China, Volvo’s fastest-growing market, the Swedish company needs more cars with an extended wheelbase to appeal to the chauffeur-driven market, said Bill Russo, a Beijing-based senior adviser at Booz & Co. Mercedes, BMW and Audi all offer models with extended wheelbases in the market.

“If Volvo will significantly grow its business, its next stage of development has to be to bring a higher level of localized cars to this market, and I think that’s where they’re headed,” Russo said.

Volvo makes the longer S80L model for China at a factory co-owned by former owner Ford Motor Co. (F) and Chongqing Changan Automobile Co. The Swedish carmaker aims to open its own plant in Chengdu in late 2013, and plans a second factory in Daqing. The Chinese government must still approve the assembly.

In the U.S., Volvo’s largest market, the company needs more fuel-efficient cars, which are becoming increasingly important amid high gasoline prices, said Jesse Toprak, vice president of industry trends at TrueCar.com in Santa Monica, California, which tracks sales and price trends. Volvo should also consider bringing diesel cars, which have “contributed greatly” to VW’s growth, to the U.S., Toprak said.

Geely Transformation

Geely bought Volvo Cars from Ford for $1.8 billion two years ago in the biggest overseas acquisition by a Chinese automaker. Ford sold Volvo as part of a broader strategy of exiting European lines, after selling Aston Martin, Jaguar and Land Rover to focus on its American brands.

Geely later lured Jacoby, who at the time headed VW’s U.S. operations, to take over as CEO. Volvo’s sales peaked in 2007 at around 460,000 vehicles before plunging during the financial crisis and global recession that followed.

Pullen, the dealer near Atlanta, said Volvo’s design has improved under Geely and new products are being developed faster than under Ford.

“I think they’re doing a lot of the right things,” he said.

To contact the reporter on this story: Ola Kinnander in Stockholm at okinnander@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

Click here to read the original article at bloomberg.com

EU keen to avoid China car war

The South China Morning Post, March 6, 2012


European chamber rules out retaliation in reply to Beijing's 'discriminatory' procurement policy

Workers assemble cars at Geely Auto's factory in Ningbo, Zhejiang province. Beijing has ordered government departments to buy local cars.

The European Union Chamber of Commerce in China dismissed suggestions that it would mobilise retaliation against Beijing’s proposal to exclude foreign carmakers from a public fleet procurement programme expected to be worth 12 billion yuan (HK$14.7 billion) a year.

The chamber, which represents European carmakers in China, said yesterday that while such a move is “discriminatory” to its members - which include Volkswagen - the last thing they want is a war between countries that hurts development of the car industry.

The tensions follow the issuance of a procurement list by China’s Ministry of Industry and Information Technology on February 24, which proposed 412 domestic brands made by 25 carmakers from which officials could buy vehicles. Former favourite brands for officials such as Audi, Honda and Toyota were all excluded, ostensibly due to a new rule that requires a government fleet supplier to spend no less than 3 per cent of its revenue on research and development.

Chamber secretary-general Dirk Moens told Bloomberg earlier that “as an industry you cannot expect to be warmly welcomed outside of your country if at the same time you start closing the industry in your country.”

The comment was considered a threat to Chinese carmakers’ expansion in Europe.

Great Wall Motor recently opened the first Chinese car plant in Bulgaria, and Zhejiang Geely planned to set up a car sales network in Italy.

The Chinese government took carmaking off the “encouraged” foreign direct investment list months ago, as Premier Wen Jiabao pledged to control growth of the country’s car manufacturing capacity amid slowing demand.

The change was considered a major setback for luxurious carmakers such as Jaguar Land Rover, which was said to be seeking approval to form a 17.5 billion yuan car venture with Chery Automobile.

In a statement yesterday, the chamber said China’s latest restrictions on public fleet supplies contradicted a policy introduced just six months ago that included both foreign and local car brands for officials. It urged Beijing to revise its procurement list.

However, Bill Russo, senior advisor at consulting firm Booz & Co and former head of Chrysler’s business unit in China, said it was not uncommon for national governments to prefer domestic car brands in the procurement of government vehicles. He doubted the European Union could retaliate in any way.

“It was an internal procurement policy,” Russo said.

“Whatever the Chinese government wants to buy, it really is their own choice, I don’t see any trade issues there.”

Russo said the move was actually good for foreign carmakers like Audi to focus more of its resources and energy on China’s lucrative retail sector. Audi said earlier the new restriction would hurt less than 5 per cent of its sales this year.

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Chinese cars, made in Bulgaria

The Global Post, March 4, 2012

Traditional Bulgarian folk musicians celebrating the Great Wall Motors plant. (Jodi Hilton/GlobalPost)

SOFIA, Bulgaria — There was an unusual display outside the city's National Palace of Culture recently: a brand-new silver SUV, encased in a glass box and stamped with the words  "Made in Lovech" — Bulgaria. 

The Great Wall Hover was one of the first cars to roll off the assembly line at a new plant built by Great Wall Motors, one of China's major car manufacturers, in association with the Bulgarian firm Litex. A celebration was held last week for the opening of the assembly plant about 90 miles east of Sofia.

This is China's first major foray into car manufacturing in Europe. If Great Wall Motors succeeds, it will gain a much-coveted foothold in the European market.

Chinese auto manufacturers have been trying for the last several years to break into the European market. As the debt crisis pushes the euro zone into recession, Chinese auto manufacturers see an opportunity to market their relatively inexpensive vehicles.

Other Chinese companies in the past have failed to meet stringent European safety standards. Great Wall Motors is the first Chinese auto manufacturer to have passed the European NCAP safety test, according to Bill Russo, a China auto-industry expert and former executive for Chrysler's North East Asia division.

More from GlobalPost: US beats China in vehicle sales growth in 2011

By assembling cars in the poorest EU countries, Great Wall Motors can ensure a ready and cheap labor supply while avoiding EU import taxes for its cars.

The new plant is located in an industrial zone outside the tumbledown village of Bahovitsa, population 1,100, where ordinary traffic consists of elderly pedestrians out to tend to their chickens, children riding bicycles and locals driving Soviet-era Lada automobiles.

“Probably a lot of people were doubting in such a place there could be such a company, the only factory of its kind in Bulgaria,” said Iliya Terziev, the executive director of Litex Motors.

This year, the plant will roll out only 2,000 cars. But Terziev said that he hopes the plant will be able to produce 50,000 cars annually when it’s running at full capacity in the next three or four years.

Great Wall Motors in cooperation with Litex will assemble three models in Bulgaria, beginning with a Voleex C-10, a small, five-door hatchback that will sell for about $11,000. The following year, Great Wall will also begin distributing two other models: a pickup truck called Steed and the Hover SUV at $20,000 — about $6,500 cheaper than popular SUVs like the Japanese Suburu Forester.

More from GlobalPost: US autoindustry expects profits in 2012

Inside the spacious and airy plant, groups of young men buzz around brightly colored vehicle shells, installing windshields, seats, engines and axels to pre-made exteriors. 

Great Wall has so far hired 120 workers, and expects to hire up to 2,000 more as production ramps up.

Atanas Novakov, 26, a recent graduate from Sofia Technical University, was hired last year and has worked his way up to team leader.

Brain-drain has plagued Bulgaria for the last decade, due to the fact that there aren’t many good jobs in Bulgaria for college graduates. “This is a great opportunity for guys like me, and very special for Bulgaria,” he said. 

Launching an overseas operation in the midst of the European economic crisis is a risk.

In order to win, Great Wall will have to undercut competitors on price, Russo said. The Voleex C-10 will be priced a few thousand dollars less than the similarly styled Toyota Yaris.

Read more: Germany’s battle over solar

Great Wall has also cleared another competitive hurdle for Chinese car manufacturers. Because it can cost about a billion dollars design a car, many Chinese manufacturers started out copying models from rival companies.

Early on, some of Great Wall’s models have looked very similar to competitor’s vehicles, most notably in the 2006 case of Great Wall’s Peri, which Fiat accused of being a copy of its own Panda. An Italian court subsequently banned the Peri from being imported to Italy.

Great Wall now exports only models of unique design, which it has been doing successfully in many countries, notably Italy, Australia and the Ukraine, with help from an Italian design firm.

Meanwhile, in Bahovitsa, Kalin Krastev, the young, recently elected mayor, said that residents have generally responded positively to the plant. But they will be more receptive, Krastev said, when more jobs become available.

That’s what’s been promised, he said, but “how soon, they won’t say.”

Krastev has been driving a Great Wall truck — a loaner from the company — but probably wouldn’t buy one just now, he said, due to the high cost of gas and low wages, especially for civil servants. “They are not that expensive, but we are in Bulgaria.”

Click here to read the article at The Global Post site

Still waiting for an electric start

Business Standard of India, February 28, 2012

Mahindra's Reva sells only around 40 units per month domestically, but is exported to 24 countries 

Devjyot Ghoshal & Sharmistha Mukherjee / New Delhi 


Toyota Prius, the world's best-known and highest-selling hybrid car, sold over two million units worldwide in the last 15 years but only 150 vehicles in India last fiscal.  So far this financial year, not a single Prius has been driven out of a Toyota showroom in the country.



The Prius experience is illustrative of the dismal state of affairs in the electric vehicle arena in India, which has sales of a paltry 83,000 vehicles compared to over 4 million cars and scooters sold in the country.


That may change.  The government is expected to roll out a policy for hybrid and electric vehicles (xEV) this April after over a year of consultations.  Yet, while all indicators for India's auto future point roughly in the  "electric" direction, India's blueprint for success may require adopting a balanced three-pronged strategy: create infrastructure; provide crucial subsidies; fund essential research and development (R&D) programmes.

DEVELOPMENTS IN ELECTRIC LAND Company Status Mahindra Reva Electric Car Company Sells 30-40 units of two-seater REVAi in India per month. Will launch four-seaterReva NXR in the first half of 2012-13 General Motors Has showcased an electric version ofsmall car Beat. No clarity yet on commercial launch Maruti Suzuki Has operational models of Eeco Electric and SX4 Hybrid but the cars will not immediately go for commercial production Hero Electric Market leader in the two-wheeler EV segment in India. Refused to give out exact sales numbers TVS Currently undertaking feasibility study  to introduce an electric version of Scooty Teenz Hero MotoCorp Showcased hybrid scooter Leap and is working on making it viable for commercial production Honda and Yamaha Have the technology to introduce electric two-wheelers but will take a final call once adequate infrastructure is set up in India

For lessons on how to do this, we could look at China's recent electrifying performance. Between 2002 and 2006, Beijing spent at least $200 million on New Energy Vehicle (NEV) programmes, with plans to put out another $15.15 billion into an alternative energy vehicles development plan during 2011-2020, much of it going into bolstering R&D programmes, with the remainder to be spent on subsidies and infrastructure creation.

NOT QUITE HIGH VOLTAGE Sales of electric vehicles pale in comparison to its fossil fuel cousins...   xEV** sales 2,010 xEV sales (P) 2011  Total auto  sales 2010 2-Wheeler 40,000.00 80,000 1.9 million* 4-Wheeler 1,000.00 3,000 2.3 million (P) Projected; * Scooters only;  Source: Industry estimates  **xEV: Hybrid and electric vehicles

Undertaking such massive financial interventions is a strategy that has worked well for China, the world's largest car market by volume, and has helped it emerge as a frontrunner in the EV sector; some forecasts even predict that China's EV market could grow to become the world's largest by the end of this decade.


In contrast, the first tangible governmental support for the xEV industry in India came only at the end of 2010, with the Ministry of New and Renewable Energy (MNRE) creating a minuscule Rs 95 crore ($19 million) incentive scheme for manufacturers and the government subsequently slashing the import duty on batteries from 26 per cent to four per cent.  The scheme provides for incentives of up to 20 per cent on the ex–factory prices of the vehicles, subject to a maximum limit, which is Rs 1 lakh for an electric car.

....BUT THE FUTURE LOOKS BRIGHTER (forecasted xEV sales in 2020 (‘000 units)   2-Wheeler 4-Wheeler Bus LCV 3-Wheeler Hybrid/ Hybrid Plug-in vehicles - 1275 2 120 - Battery-operated electric vehicle 4,800.00 170-320 0.3-0.7 30-50 20-30 Source: SIAM, Booz & Company analysis

But it isn't merely the incredible disparity in monetary support that differentiates the trajectories that the two countries are taking.  China's automotive sector thrives on the collaborations that exist between strong domestic players and international majors, such as those between Germany's Volkswagen and Shenzhen-based BYD Automobile or General Motors and SAIC.


At the same time, the presence of some of the world's biggest rechargeable battery manufacturers, by virtue of the booming cell phone and laptop industries in China, alongside growing mobility demand in a country with serious environmental concerns, creates a near-perfect situation for the xEV market to thrive.


"In India, only Tata and Mahindra & Mahindra are domestic manufacturers of some reckoning.  Any technology that comes in here would be driven by global manufacturers, rather than local R&D.  In China, the government has $15 billion to spend on EVs and the domestic players are strong enough to do the R&D,"  said Deepesh Rathode, Managing Director of IHS Automotive India.


Since India has negligible volumes, little money and, so far, fleeting ambition to take a big (and expensive) leap into the xEV sector, Rathode is convinced that growth in the sector has to be infrastructure-driven.   Others, like Bill Russo, President of Beijing-based consultancy Synergistics, and a keen observer of the Chinese xEV market agrees.  "I do believe infrastructure investment is a 'price of entry' which can drive market acceptance of a new technology," he says. "This, by the way, was also true for gasoline powered cars in the early 20th century. Consumers need to know they can conveniently service and recharge their vehicles before they would even consider buying.  Infrastructure is a 'foundation' for driving xEV market acceptance," he added. 


Indian EV makers, however, are pitching for higher subsidies to drive initial demand, on the premise that infrastructure can follow once there are enough such vehicles on the road. Consumers, typically, are reluctant to buy xEVs that exceed the price of conventional vehicles by more than 10 to 15 per cent. “There should be a good incentive for consumers. Once the demand side gets going, in turn it will make other things viable,” said R Chandramouli, chief of operations, Mahindra Reva Electric Car Company, which sells between 30 to 40 units per month in the domestic market.


Bangalore-based Reva, now a part of Mahindra & Mahindra, is the maker of one of the world’s highest selling EVs— the REVAi, which is exported to 24 countries. The carmaker is in the process of setting-up a 30,000 unit per annum plant, making it the single-largest electric car manufacturing facility anywhere in the world.


Pawan Goenka, president, automotive division and farm equipment sectors, Mahindra & Mahindra, is more explicit. “Without the subsidy currently provided under the MNRE scheme it would be difficult to enthuse buyers to purchase electric vehicles. EVs have to be subsidised to encourage use by consumers. The quantum of the outlay made would determine how serious the government is about green vehicles,” he said.


There is little doubt that the government is serious. The National Hybrid / Electric Mobility Study, conducted by Booz & Company, on behalf of the Ministry of Heavy Industries and Public Enterprises and the Society of Indian Automobile Manufacturers (SIAM) makes a strong case for pushing the xEV sector in India. It outlines the need interventions required to support the growth of the hybrid/electric market can be classified into five areas—fuel efficiency regulations, demand-and-supply- related interventions, research and development support, and infrastructure investments.


"To achieve the tipping point for the market, the first step is to bridge this price–performance gap for consumers, and bring acceptable products into the market through demand side and supply side interventions. In parallel, the industry also needs to invest in building manufacturing and technology development capabilities. Along with this, power and charging infrastructure investments need to be made to facilitate adoption" a summary of the study states, adding that by 2020, a self-sustaining stage can be targeted for the industry.


But it's the government's strategy, rather than its intent, that will be crucial in determining the eventual success of India's xEV push. At the same time, any blueprint must also leverage the existing advantages that India Inc offers, much like how China's EV industry has benefited from the presence of large rechargeable battery manufacturers. 


"India's largest potential opportunity is in the area of BEV 2W (Battery electric vehicle, two-wheeler) and HEV 4W (hybrid electric vehicle, four-wheeler) segments. These are areas where many Indian manufacturers, who understand the nuances of the market, can take the lead in offering frugally engineered and affordable solutions," explained Russo.


Reva's Chandramouli, too, felt that bringing the cost of EVs down is something that the Indian firms could achieve. “The difference India can make is to make EVs more affordable, and for it to happen there needs to more R&D in this segment”.


In particular, there may be significant opportunities in the two-wheeler EV vertical, which could comprise between 3.5 to 5 million of the total 5 to 7 million EVs that may be annually sold in India by 2020, according to the Booz & Company study.


While the future of the Indian automotive sector may very well be down electric avenue, what remains to be seen is how we’ll all get there.



Click here to read the article at business-standard.com

争夺全球中产阶级市场 (Competing for the Global Middle Class)

Booz & Company Publication


Chinese version of the popular article originally published in Strategy & Business magazine by Edward Tse, Bill Russo and Ronald Haddock.

争夺全球中产阶级市场

View more documents from Synergistics Limited

Flying the Red Flag: China drives officials away from Audi

Reuters, February 28, 2012

By Fang Yan and Terril Yue Jones

Feb 28 (Reuters) - When China's leader-in-waiting Xi Jinping pulls up in a motorcade sometime in the next decade, he will probably not be riding in one of the black Audis that have become standard for Chinese top brass.

Instead, if Beijing implements new rules requiring the government to buy only local car brands, he will likely emerge from a Red Flag limousine, the boat-like chariot that ferried around Chairman Mao Zedong from the 1950s to the 1970s.

The move, announced over the weekend, is not final and would likely have a limited effect on foreign automakers in China, since government fleet sales account for less than 10 percent of car sales, according to some estimates.

But the policy is good news to Ling Liang, a sales manager at an FAW dealership in Beijing, where only two cars sat in a dimly lit showroom, with no customers.

"We have long tradition and experience, more than other Chinese brands," Ling said of FAW Group, whose brands include Besturn mid-range sedans and the former Red Flag.

China is the world's largest auto market, but the legions of mostly German cars with tell-tale license plates bearing government, military and police designations are seen by some as diminishing that achievement.

And premium government sedans often flout traffic laws, frequently engendering resentment from a public which sees them as symbols of abuse of power and a widening wealth gap.

The government's diktat has not been explained publicly. The ministry posted a statement on its website saying only that Chinese brands must be purchased for government fleets, and asked for public comment.

It's believed however to be an attempt to put a more Chinese face to government convoys, and mollify public indignation over extravagant and arrogant behaviour by officials.

"Chinese people are fed up with 'the three excesses' of public officials: fancy cars, fancy meals and fancy travel," said Xu Guoliang, a 36-year-old architect who was getting his A6 serviced at an Audi dealership in Beijing.

China is Audi's biggest market. It is the largest German luxury marque here, but its government sales in China reach only into the low single-digit percentage; the bulk of its customers are companies and individuals.

Besturns are more modest - the B50 with a 4-cylinder, 1.6-liter engine and the B70 with a 2.0-liter six-beater.

"They're also more affordable," Ling says.

An Audi A6 starts at 390,000 yuan ($62,000) and goes up to 700,000 yuan ($111,000) - which could buy you more than seven entry-level Besturn B50s, which start at 93,800 yuan ($15,000).

Even the most lavishly apportioned Besturn B70 sells for 165,000 yuan ($26,000), little more than half the starting price of the cheapest Audi, the compact A3 at 260,000 yuan ($41,000).

FAW is planning to revive the Red Flag brand, working on a project called the C301 which will rival the A6 when it debuts.

With 14.5 million passenger cars sold in China last year, annual government purchases of some 80 billion yuan ($12.7 billion) are still a small slice of the overall market, which is dominated by increasingly wealthy individual consumers.

But domestic carmakers such as SAIC Motor, FAW Group, Great Wall Motor Co Ltd and Chery, which produce extended-wheelbase cars, could get a boost from the policy.

"It's good that we're getting some support from the government," said Victor Yang, spokesman for Geely Automobile Holdings Ltd. "But we should be counting on ourselves, not the government, to improve our competitiveness."

Audi, owned by Volkswagen, has by far been the preferred brand of Chinese officialdom going back to the 1980s.

"It's luxury, but it's low-key," said Wang Yang, an Audi sales consultant in Beijing. "A lot of Chinese don't like to show off."

Sales of foreign automakers are not expected to suffer much.

"It's like asking an American car company, 'Are you going to suffer from not selling as many taxis'?" said William Russo, an industry veteran who runs the auto consultancy Synergistics in Beijing.

"Beijing's new rule gives them the perfect rationale to really push to reposition themselves away from being officials' cars to being business-owners' cars," he said.

"It will make foreign companies more competitive in the business-owner segments."

However, the government list did not include luxury brand Volvo, which is the only Chinese-owned premium brand currently in the market.

Red Flag and SAIC's Roewe could benefit the most, as they are the only Chinese brands that come close to the plushness and leg-room of an Audi or a Mercedes-Benz.

Already, some state clients are turning to Chinese brands.

"Most of our clients are consumers, but we do have some government clients, especially for the Roewe 750 model," said Wei Jia, a manager at an SAIC dealer in Beijing.

"It's a good car and not that expensive. I'm sure the new policy will help our sales."

Click here to read the article at reuters.com

China Auto Policy Risks Misfiring

The Wall Street Journal, February 28, 2012

By TOM ORLIK

In the gridlocked streets of China's cities, frustrated motorists are used to Audi-driving officials speeding down cycle lanes, illegally parked outside luxury malls and driving the wrong way along one-way streets.

A new list of cars that government officials can drive excludes foreign brands and directs China's bureaucrats to buy cheaper domestic alternatives. It is meant to kill two birds with one stone. Public anger at official waste and corruption is appeased. Domestic auto firms get a bigger chunk of the estimated 80 billion yuan ($12.7 billion) official car budget.

It won't be that simple. The new list is at the consultation stage. Even if it comes into effect, implementation will be difficult. A move last year to restrict mid-level government officials to buy smaller, cheaper cars appears to have had little impact on sales. Dealers say officials evade restrictions and get the car of their choice anyway.

In the event sales to officials do dry up, foreign luxury brands will continue to tap one of the fastest-growing sectors of the China auto market. Bill Russo, an expert on China's auto industry at Synergistics, says luxury cars account for only 8% of unit sales in the Chinese market, compared with 14% in the U.S.

As important, though Chinese companies like Chery and BYD are bumper-to-bumper in the budget end of the market, they don't have the technology or the brand image to make a dent on the luxury end. With limited domestic competition, Audi's China sales rose 29.2% year-to-year in the first three quarters of 2011, considerably outpacing growth in sales for the auto market as a whole.

The new list is good public relations for a government keen to show it is cracking down on abuse of public funds. But it will be a while before China's citizens can hope to spy officials behind the black tinted windows of a domestic brand car.

Click here to read the article at wsj.com