Automakers face uphill road in China

SHANGHAI/HONG KONG (Reuters) - After driving his BMW 5 series model for just three years, Chinese futures trader Jerry Lin traded in his car for an Audi A6.

His decision had less to do with performance and more with image: BMWs have become associated with China's nouveau riche, while Audis are favored by 'old money' and senior government officials.

"When people made money the first thing they did was get a BMW," says Lin, who lives in Wenzhou, a city known for its rich entrepreneurial culture. "I had a lot of fun driving my BMW. Now, I want to try something different."

China's car market is the world's largest with growth opportunities that are dazzling. About 10 million vehicles will be bought in China this year, a 500 percent increase from 2000.

Yet despite the opportunities, foreign automakers face an uphill battle marketing cars in an intensely competitive and fickle market.

"The huge amount of foreign brands pushing into the Chinese market somehow overloads potential customers with far too much information," said Jochen Goller, Vice President of marketing for BMW China.

"So it is getting more and more difficult to get brand and product messages through to and understood by the audience."

BMW tries to separate itself from the rest of the luxury car pack with "experiential marketing," hosting events such as a car rally across China called Destination X which has received 35,000 applicants for only a few places in this year's race.

Despite the novelty of such campaigns as well as viral marketing initiatives such as a social networking website for BMW owners, industry experts say Chinese consumers have little brand loyalty.

"Few foreign automakers have successfully differentiated their brands in China so far because pricing, more than anything else, is still the number one concern for most buyers," said Huang Zherui, an analyst with CSM Worldwide, a global industry consultancy.

"Customer loyalty is almost an unheard of concept here and even a moderate price-cut can easily swing customers away to the competing brands," Huang added.

In China's luxury sector, which makes up about 5 percent of car sales, Audi and BMW owners are starting to switch brands without a second thought.

"We have an Audi at home. I am here to pick a BMW as a birthday gift," said a woman, who gave her name only as Wu, as she inspected a BMW 7 model at a Shanghai dealership.