Volvo Cars will launch 10 models in China over the next five years as it seeks to make up for lost time in the world’s largest car market, Chief Executive Stefan Jacoby said. The Swedish carmaker, which is owned by Chinese carmaker Geely, today offers six models in China and will add the new ones after opening two car plants and an engine plant in the country. “In the year 2017 we will offer 10 additional new models in the Chinese market,” Jacoby said at the Beijing auto show. Because some of the cars in Volvo’s line-up would be retired by then, the number of models offered would be less than 16, he said. The new models would mostly come from the brand’s global cars portfolio, but some would be tailored for the Chinese market. Volvo aims to open its first car plant in the second half of 2013 in Chengdu, which will make small and midsize cars. The plant’s first model will be an upper-midsize “C/D” segment car. A second plant making larger cars will be opened two years later in Daqing, Jacoby said. The company will also build an engine plant in Zhangjiakou, near Beijing.

Carmakers were warned against over-expanding their capacities and dealerships as the number of dealers reporting shrinking profits or even losses was rising. Sinomach Automobile – the third largest dealer in China – told the Automotive News China conference in Beijing that carmakers were facing an imbalance between supply and demand. “We expect sales of imported cars to grow by about 20% to one million this year,” said Sun Yong, the company’s Deputy General Manager. “However, some carmakers forecast growth of up to 50% or even 70%.” A survey by JD Power and Associates of 1,605 dealers of 38 brands in 59 cities found the number of profitable dealers shrank to 63% last year from 81% in 2010, while 20% saw losses, against 9% previously. Sun expected profits to shrink this year. ADP Dealer Services, which provides management systems to the industry, said the average net profit of car dealers last year was about 5.2% but a “cold winter is coming”. James Press of McLarty Automotive Partners said apart from focusing on new sales, which used to make up to 40% of profits, dealers should expand their source of income by looking into options such as after-sales services or used car sales. Tan Peng-wei, Asia President of ADP, said manufacturers should provide more training to sales agents as the industry was still young and most agents focused only on selling new cars.

China’s luxury vehicle sales surged 36.7% year-on-year in the first quarter to 130,416 units, according to a study by Morgan Stanley. The growth far beats the overall market’s 3.4% decline and the passenger vehicle segment’s 1.3% drop. China for the first time became BMW’s largest market. BMW’s first-quarter sales of 80,014 units showed a 36.8% growth year-on-year, while Audi reported total sales of 90,063 units, an increase of 40.5%. Mercedes-Benz also saw its sales surge 24% in China in the first three months of the year. The company expects China to be its biggest market by 2015. Moreover, “China plays an important role in our 2020 strategy of regaining the top position in the world in all categories before this decade is out,” said Joachim Schmidt, Executive Vice President of Sales and Marketing for Mercedes-Benz Cars. Statistics from Morgan Stanley show that luxury vehicles in the first quarter only occupied 4.1% of China’s total automobile market. Jia Xinguang, an independent Beijing-based Auto Analyst, said he believes the luxury vehicle sector in China will maintain high-speed growth over the next decade. Dan Akerson, Chairman and CEO of General Motors, announced that the company plans to bring two new Cadillac models to China, the XTS luxury sedan and ELR luxury electric coupe. The XTS will be manufactured and distributed in China by Shanghai GM. It will go on sale at Cadillac dealers nationwide in the fourth quarter of 2012. “China has quickly become the fastest-growing market for Cadillac. Last year, sales rose by 73%,” said Akerson. Luxury car sales jumped 22% in the first quarter of this year while passenger car sales dropped 3.4%.

Foreign carmakers in China say Beijing is putting pressure on them to produce dedicated new brands so their local partners can gain technical know-how, but experts warn the strategy could backfire. The government, keen to boost the local automotive industry, has long required foreign companies aiming to make cars in China to set up joint ventures with domestic manufacturers. In the past year, companies say they have also come under pressure from Beijing to launch brands specifically for the local market, even though there are no explicit rules requiring them to do so. “Many of our competitors that have not launched a dedicated brand have had the brakes put on their plans to develop manufacturing,” said Maxime Picat, Director General of Peugeot-Citroen’s joint venture in China. “We are putting together plans to launch our own brand, in line with what the government requires.” Picat said Beijing had been reviewing the 20 years since international auto partnerships were authorized. “There has been very little transfer [of technology],” he added. Experts say there is a danger that by helping their Chinese partners gain access to technology foreign manufacturers could end up creating more competition for themselves at home. General Motors was the first to fulfill the government’s desire, launching its Baojun brand a year ago in association with its partner Shanghai Automotive Industry Corporation (SAIC). Volvo also announced it was working on a new brand for the Chinese market, while Nissan launched three electric cars under the new Venucia name. “Foreign brands do not benefit from incentives, even if they are manufactured in China,” Nissan’s China Public Relations Manager Shen Li pointed out. Some foreign manufacturers, such as Ford, have so far held back from launching dedicated Chinese brands. Ford has just 2% of China’s passenger-car market. Intent to catch up, the second-largest U.S. carmaker is spending USD4.9 billion to build eight factories and launch 15 new models in China by 2015.

Luxury car makers including Porsche, Maserati and Bentley Motors, are opening more and more showrooms in inland cities, from Ordos in Inner Mongolia to Changsha in Hunan province. “Major cities such as Shanghai, Beijing and Guangzhou powered the initial phase of the auto demand boom,” said Ashvin Chotai, Managing Director at industry researcher Intelligence Automotive Asia. “Expansion into the inner provinces and smaller cities is a natural aspect of the evolution of the car market and will be an ongoing process in the medium and long term.” While nationwide premium-car ownership in China lags behind the global 10% average by 2 percentage points, their share in eastern coastal provinces exceeds U.S. and European levels, Sanford Bernstein said. For example, luxury cars accounted for 24% of vehicles in Beijing in the first half of 2011, more than double the 11% U.S. average. Lamborghini, BMW’s Rolls Royce and Bentley already say their biggest market is China, where CapGemini and Bank of America estimate there are half a million millionaires with USD2.7 trillion in wealth. Ten of Porsche’s 12 best-performing dealerships globally are in China, the company said. Deliveries of cars priced beyond CNY2 million are set to grow 19% this year to 5,278, according to data from industry researcher IHS Automotive. By comparison, the China Association of Automobile Manufacturers (CAAM) predicts the total number of passenger vehicles will increase 9.5% in 2012.