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Rolls-Royce leads luxury fleet to China

December 28, 2006 08:21 IST

The headlong dash by global automotive players to set up low-cost manufacturing capacity in China's hyper-growth auto market is a familiar story. So is the relentless price-cutting pressure and profit margin squeeze foreign car companies face when they are up and running. As any auto exec will tell you, the mainland is an extraordinary growth story-and simultaneously one of the most cutthroat markets on the planet.

Then there is the remarkable exception of Rolls-Royce Motor Cars. Here is a fabled brand from a British car company that makes by hand its Phantom ultra-luxury sedans at a new plant with high-cost labor in Goodwood, near the south coast of England.

It exports them into China, and thereby triggers stiff luxury taxes and import duties that effectively more than double the sticker price of the Phantom to $800,000 vs. what U.S. consumers would pay for a basic model. (They start at about $350,000 in the U.S.)

And, guess what? Rolls-Royce's sales are up 50% this year, about double the pace of China's overall luxury segment. China is now Roll-Royce's third biggest market after the U.S. and Britain, and the company's fastest growing one.

A big reason is the rapid wealth accumulation in rich coastal markets such as Beijing, Shanghai, and Shenzhen, where newly rich businessmen are buying Phantoms loaded with expensive extras to get around town in style.

The Original Partnership

"We just did an order (for a $2.2 million Phantom) with a Beijing property developer," says Rolls-Royce Motor Chairman and Chief Executive Officer Ian Robertson. And China "is almost completely new territory for us," he points out.

The Rolls-Royce luxury brand, of course, is anything but new. The British car and aero-engine company, founded by Henry Royce and C.S. Rolls, came into being in 1906. During the depression, it acquired rival carmaker Bentley and the car unit was spun off from the aircraft engine division -- now called Rolls-Royce Group -- in the early 1970s.

In 1998, BMW Group bought the rights to the Rolls-Royce name, logo and iconic Spirit of Ecstasy mascot-and that was about it. Volkswagen ended up with the branding rights for the Bentley, and the old company's plants and workers.

The Image of Luxury

So, three years ago, the Phantom was designed from scratch under BMW leadership. The result was a super-luxury sedan that still oozes classic elegance, but also boasts plenty of muscle with an all-aluminum (6749cc) V12 engine and highly advanced lightweight and adjustable aluminum spaceframe-the largest of its kind ever made in the automotive industry.

"BMW hadn't done an aluminum spaceframe before," says Robertson, and "this technology is leading edge."

Robertson, 48, a former Rover Group leader who also ran BMW South Africa for about seven years until early 2005, was in Hong Kong on Dec. 14 to celebrate the sale of a fleet of 14 Phantoms to the upscale Peninsula Hong Kong hotel, a property of The Hongkong and Shanghai Hotels, Limited. It's the largest single order ever for Rolls-Royce, and the Phantom is probably a natural choice for a hotel where high-end suites run $5,000-plus a night.

"The Rolls (Phantom) fits our image, and it's a superb car," says Hong Kong and Shanghai Hotels Chairman Sir Michael Kadoorie.

Customizing its cars to satisfy the whims of customers is what Rolls-Royce is all about, and the Peninsula fleet cars are equipped with rear-seat air conditioning controls, an in-car entertainment system with 12-in.-screen DVD players, a temperature-controlled cool box for drinks and towels, and interiors trimmed with 18 leather hides per car.

Money's No Object

Robertson points out that the Phantom isn't just about fancy frills but also some first-rate engineering and engine performance.

He says the Phantom, which is also racking up sales in the oil-rich Middle East, is on track to sell 800 units in 2006. If so, that would set a 16-year sales record for Rolls-Royce, though the original sales target set back in 2003 was 1,000.

The company is also placing big hopes on a Rolls-Royce convertible that it will unveil at the Detroit auto show in January and start selling in mid-2007. With a base price of about $400,000, the convertible will cost nearly $1 million in China but Robertson thinks sales will be brisk, nonetheless.

"We are already seeing demand everywhere for the convertible," he says. Another smaller-scale and less expensive Rolls-Royce model is being developed for later this decade, he adds.

Rolls-Royce is hardly alone in trying to reach well-heeled consumers on the mainland. At the Beijing Auto Show in November, parent company BMW showcased its 5-Series sedans, including the top-of-the-line, 268-horsepower 530Li that starts at about $61,000.

King of the Hill

General Motors, meanwhile, hopes to build on the Chinese success of its Cadillac brand, which debuted in 2004 with the CTS, XLR, and SRX. Coming next year will be the Escalade sport-utility vehicle and the Cadillac SLS, which will fetch about $63,580.

The Japanese are making a big play in China's luxury market as well. Next year, Nissan will bring its Infiniti brand to China, including the popular G35 sedan. In September, Honda introduced the Acura RL and TL sedans, which go for about $45,000 and $33,000, respectively.

Toyota already sells its Lexus ES350 and IS300 luxury vehicles on the mainland.

Still, Rolls-Royce enjoys an enviable position. When consumers are willing to fork over $800,000 for your marquee product, well, that's a very good place to be.

Brian Bremner, BusinessWeek