Cambodia's Auto Market: Volkswagen AG's (VOW3) Audi And Porsche Latest Luxury Automakers To Enter After BMW (BMW)

German automaker Audi will open its first showroom in Cambodia next year following Porsche, also under the Volkswagen AG (ETR:VOW3) banner, and Bayerische Motoren Werke AG (ETR:BMW)'s BMW, to break into the Southeast Asian nation’s tiny but growing new car market.

“The premium automotive market in Cambodia is a niche market sizeable enough to allow an investment in the proper facilities with a reasonable profit return,” Laurent Genet, chairman of Automotive Asia, Audi’s official distributor in Southeast Asia, told the Cambodia Daily. “The market will grow as Cambodian economic fundamentals continue to develop favorably.”

Some of Audi’s cars will start at $33,800, cheaper than the average offering of Daimler AG's (ETR:DAI) Mercedes Benz, which also has a show room in Cambodia and sells 20 to 30 cars a year in the price range of $100,000 to $150,000, but Audi’s R8 Spyder sports car could sell for up to $174,000.

"I think the market will get stronger with the official distributor because so far it’s divided into the gray market and official distributors. Having more official players will increase the awareness of official distributors,” said Pily Wong, CEO of the Mercedes Benz dealership in Cambodia, welcoming the competition from Audi. “Their move is a good sign because it shows confidence in the industry and is a good indication that the market is growing.”

Official dealerships complain that sales are hurt by the gray market, where cars are imported through channels aside from official distributors. Even so, the Cambodian auto industry is growing at about 20 percent per year and moves some 1,000 luxury cars each year, said Peter Brongers, CEO of BMW Cambodia.

“In the past, Cambodians didn’t think to buy new cars. Now they are because of the benefits of having warranty, safety, service and the right parts,” Brongers said. BMW just opened its showroom in Cambodia this month.

The luxury car market remains tiny in Cambodia – perhaps too small to sustain the large numbers of purchases that the automakers are hoping for in coming years.

“I think the luxury market is still small and most Cambodian people still prefer second-hand cars,” said Neou Seiha, an independent economist and former senior researcher at the Economic Institute of Cambodia, according to the Cambodia Daily. “It is not substantial. The luxury car market is not big enough because there is little domestic demand.”