According to a recent Bloomberg article, Mercedes dealers in China are offering record markdowns of 25% on high-end models. In addition, BMW’s 7-series and Audi ’s A8 are selling for 20% below sticker prices, while “waiting lists have vanished and salesmen are dangling perks ranging from free iPhones to Hermes-bag coupons.”

Wow, talking about a slowdown… but, but, but where are all the corrupt government officials (here, here, and here) to throw money at and save the poor German carmakers?

Anyway… still according to Bloomberg, the incentives are likely to get even bigger. The discounts began late last year as the world’s second-largest economy slows.

“This year’s luxury-car discounting is the most I’ve ever seen,” said Scott Laprise, automotive analyst at CLSA Asia Pacific. “China’s luxury car price premium is eroding.”

Squeezed margins…

The trend may continue, says Credit Suisse. “The margins they currently achieve in China are not sustainable.” Average profit margins in China at the three German carmakers should fall 4% by 2014.

“Shorting” luxury brands with strong presence in China…

GMO’s Peter Chiappinelli seems to be spot on in his “China short” call about a month ago. He said the following about his bearish position on China:

“You can play a China short through European luxury goods, through BMW, through Burberry, those kinds of names, vast majority of incremental growth is coming from mainland China. And we think they are very very exposed right now to a potentially dangerous situation.

Desperate times call for desperate measures…

For Mercedes-Benz salesman Jack Ren, the days when Chinese customers paid extra to cut in front of the line are over. His dealership in Shanghai introduced unprecedented discounts for S- Class models in February to clear inventory.

“A buyer of a S600 sedan last year would have to pay an additional $31,600 to hasten delivery of his car. This year, the same car is selling for $31,600 less.”

Throwing iPhones on them…

Morgan Stanley analysts said that BMW dealers offered iPhones, free car insurance and maintenance in January and February, while Volvo gave C30 buyers a free trip to Hong Kong.


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