CIXI, China (Reuters) - Chen Beiyin bubbled with joy when she picked a $141,700 Mercedes-Benz E350 coupe for her dowry and topped off the wedding with a lavish procession that included 12 S600 sedans, the priciest cars in the fleet.
"My dad drives an S-class and my husband a C-class. So when my dad asked me what I wanted for a wedding gift, I picked Mercedes-Benz too," recalled the 29-year-old Chen, who has an MBA degree and goes by the English name of Helly.
"You know, girls of my age fancy sports car these days. I kind of hesitated between SLK and E350, but I went for the latter because the SLK is much too showy."
Chen, who hails from the tiny but wealthy city of Cixi in eastern Zhejiang province, not only reflects China's burgeoning affluence, but she and others like her represent a new trend -- rich consumers far from the major metropolitan centers.
And luxury carmakers are racing to follow the money.
Cixi, a fifth the size of Shanghai but with an average personal wealth on par with mainland China's financial capital, is among a slew of smaller cities that mark a new competitive frontier for top global luxury auto sellers.
The city is known for its entrepreneurs, with nearly a third of families owning their own businesses. Chen's father made his money manufacturing magnets.
Audi, BMW and Lexus have all staked their claims, setting up showrooms around the outskirts of Cixi, about two hours drive south of Shanghai. Jaguar and Land Rover also reportedly selected a site in the vicinity.
"It's the absolute right thing to do for the carmakers because the market has been expanding," said Klaus Paur, managing director of greater China at industry consultancy, Synovate Motoresearch.
"Historically, it's the big cities and the coastal belt. But now rich people are not only in tier 1 and tier 2 cities, they are in tier 3 and tier 4 cities as well."
The shift to smaller cities started two to three years ago, but gathered pace in 2010 as Beijing's massive economic stimulus plan spurred car purchases and helped create a crop of nouveau riche in the hinterlands.
Official worries about China's traffic-clogged major cities have helped. Cities such as Beijing and Shanghai have made it harder for residents to buy cars.
Buying a car in Beijing, for example, is only possible for those who win a monthly car registration lottery.
Statistics provided by J.D. Power and Associates show that nearly 60 percent of luxury car sales came from tier 1 regions in 2004, including Beijing, Shanghai and Guangzhou. That share is now a little more than 50 percent.
That means more sales in smaller cities like Yulin in Shaanxi province, Shaoxing in Zhejiang, and Erdos in Inner Mongolia.
Erdos, once a rugged outpost on China's northern grasslands, is now a major market for Tata Motors' Jaguar and Land Rover, according to the company.
Range Rover, the top line of the Land Rover family and priced as much as $518,000, has a special appeal to the descendents of Mongolian herdsmen, some of them newly rich from the mining businesses flocking to the region.
"We bumped into a Range Rover or Land Cruiser from time to time when we drove around the city," said Shawn Li, a Beijing-based IT solution manager, after returning from a week long-trip in Erdos.
"Even the parking lot of a three-star hotel we stayed in was full of fancy cars and that made my Jeep Compass look shabby."
Another coal mining city in the province of Shaanxi, Yulin, is a key battleground for luxury car makers such as Audi and BMW.
Audi opened a dealership in Yulin at the end of 2009, BMW followed suit less than a year later. Business has been booming.
"I can move five or six cars every day on average," said Xiao Zhang, an Audi dealer in Yulin. "There are many expensive and super expensive cars here, Audi, Mercedes, BMW, Lexus, Jaguar, Rolls-Royces, Porsche, you name it."
Choi Duk Jun, vice president of Mercedes-Benz in China, said that when he first came to China five years ago, only 60 outlets handled cars with the distinctive three-point stars on the front.
Now there are more than 180 such outlets with 12 percent in small cities that have combined annual sales of at least 1,000 luxury cars of various brands. The German car maker aims to double the number of its outlets by 2015, with a quarter of them in smaller cities.
From January to September, Mercedes-Benz sold 139,400 units in China, up 38 percent on an annual basis. BMW sold 177,522 units, up 45 percent. China's overall passenger car market climbed 6.4 percent during the period.
Xu Dizhen, owner of Mercedes-Benz dealership in Cixi, already plans to add two more outlets nearby in Ninghai and Yuyao, two adjacent affluent cities.
To plan for future expansion, Choi closely monitors new car registration in 280 small Chinese cities.
Rivals are also on the move.
Audi plans to expand its dealership network in China to 400 by the end of 2013, up from 174 dealerships late last year. Volvo Car, now owned by China's Geely group, is adding over 100 outlets by 2015, targeting lower-tier regions.
"We are not adding more dealerships in Beijing, we are not adding more dealerships in Shanghai. Tier 2 and tier 3 are more or less what we are doing at the moment," said Richard Snijders, head of Volvo's China sales arm.
To be sure, bringing expensive products and venturing into small cities comes with its challenges. Those include outpacing or misjudging market trends as well as bumping up against manpower constraints.
In particular, dealerships struggle to find qualified technicians who can earn 200,000 to 300,000 yuan annually.
"It's a problem in bigger cities but it's even tougher in smaller cities," said Mercedes-Benz's Choi about finding mechanics and technicians who can service high-end cars.
"There is a war for not only for the customers, but also for talent to work at the dealership, especially on the after-sales side."
Most luxury car makers first came to China with their flagship models, appealing to an older generation and a small class of well-connected and wealthy customers.
But steady growth in the world's second-largest economy has radically changed lifestyles of the younger generation who seek out luxury goods that announce their new status.
Luxury automakers are tripping over each other to appeal to this upwardly mobile and style-conscious class of consumers.
Audi is expanding its China portfolios to include the locally-made Q5 SUV in addition to its overseas-made models. Mercedes-Benz has introduced A-class and B-class cars to China and may start making GLK SUVs in its facility in Beijing next year. BMW has also been bringing in smaller, sportier models to beef up its portfolio.
"It's an amazing market," said Choi. "Never again will the automotive industry experience this kind of growth."
Additional reporting by Tina Qiao in BEIJING; Editing by Don Durfee and Matt Driskill