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HomeOpinionDashboardIndia’s appetite for luxury cars is entering the fast lane—Mercedes-Benz, Audi, BMW...

India’s appetite for luxury cars is entering the fast lane—Mercedes-Benz, Audi, BMW gearing up

All three German brands admit that 2022 would have been even better if not for a shortage of semiconductors that hit their highly-computerised models hard.

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Depending on the source of your data, the market for luxury cars in India was anywhere between 30,000-35,000 units last year. This segment in India is generally considered to be vehicles that cost above Rs 40 lakh ex-showroom. But the definition isn’t cast in stone. Different carmakers tend to slice the market differently. So cost can’t be the sole deciding factor. It’s the make too. Would the Kia EV6 that costs Rs 70 lakh be considered a ‘luxury vehicle’?

The badge makes a difference: rocking up to a function in a Mercedes-Benz matters, even if it is a small Mercedes-Benz. After all, the entry-level Sports Utility Vehicles from Mercedes-Benz (GLA), Audi (Q3) and BMW (X1) are hammered by the Hyundai Tucson when it comes to features. And while the Tucson is quite definitely a looker and a very good car to drive, in the world of the wealthy and particularly snobbish, landing up in the entry-level variant of the BMW X1 will cut more ice.

Mercedes-Benz India’s new managing director, the first Indian at the helm of the world’s ‘first’ carmaker, Santosh Iyer put it quite simply, “at the end of the day, a watch is a watch is a watch, they all tell the time, but why do successful people want a Rolex or something even more exotic? Even with digital watches and fitness trackers, you can get excellent ones for Rs 5,000, but you know the Apple Watch Ultra, which costs ten times as much, is what others are wearing. Same thing with cars, right? Mass-market brands are coming with many more features, but this is what building a brand legacy is all about.”

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The third factor: Beyond badge and pricing

For someone like me who tracks the global car market, numbers too matter. The China story for Mercedes-Benz puts things into perspective for the luxury segment. One of the starkest differences between India and China is the size of the market for luxury car brands. While figures for December 2022 are not out as yet, Mercedes-Benz alone sold over 593,000 cars in the first eleven months of 2022 in China. In India, by their own admission, the carmaker sold just 15,822 units, which they claim gave them half the luxury car market—that’s just about two per cent of its China numbers. But in India, it meant a growth of 41 per cent from 2021. Another German carmaker, Audi that saw sales slump after withdrawing from the diesel segment and is only now re-establishing itself, sold 4,187 units in India in 2022, a growth of 27 per cent, according to a release. Audi sold over half-a-million cars in China last year.

All three German brands admit that 2022 would have been even better if not for a shortage of semiconductors which hit their highly-computerised models really hard. Add to this the shortage of containers and skyrocketing freight rates, which according to them, also played a part in keeping the sales lower than where they are. That said, Mercedes-Benz, which has been the market leader in the luxury segment for the past eight years, has only recovered sales to 2018 levels when they sold 15,538 cars in India. But as Iyer points out, sales of luxury cars in India are approximately the same fraction of the overall market as they are in China. “They sell between 1.5-2.5 million cars every month in China, even right now. In 2022, the entire sale of the automotive industry in India will be just over three million units and 1-2 per cent of the market is for luxury brands in India, just like it is in China. As the Indian market grows, demand for cars from us will increase and I think we can possibly grow faster than the overall market.”

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Wooing with luxury

And one way to grow sales of luxury brands is to enhance the ‘value’ proposition. “You have to go beyond the car,” BMW’s Pawah tells me. “I can’t sell you a BMW and then forget about you, I have to constantly do things to reinforce BMW, so that you come back to me in a few years and when your friends or family are considering a luxury vehicle, you bring them to us.” This is one of the reasons that BMW is organising ‘JoyTown’, a weekend-long funfair for all intents and purposes, where they will feature top musical acts but also launch some of their latest two and four-wheel offerings. “Joytown is taking place in three cities, Delhi, Mumbai and Bengaluru and the tickets are sold out.” (The Delhi event has already taken place and the Mumbai event is on this weekend)

With the age profile of luxury car buyers reducing — now in their late-30s or early-40s — events like Joytown make sense. Audi’s various ‘sports car experience’ events as well as Mercedes-Benz’ golf tournament are part of the same strategy. While these are at a corporate level, local dealerships are also organising their own events to constantly keep engaging with customers.

Given the huge increase in demand for automobiles in general in India, and the luxury market in particular, Pawah believes that he would have sold more than the 12,000-odd cars (BMW and MINI) in 2022, had the semiconductor and freight issues not stunted growth. He believes that growth will be in the double-digit percentage this year for the luxury segment. And to ensure that growth, BMW, much like their rivals, is going on a spree of launches in the next couple of months—facelifts and new variants included.

Iyer, whose comments a month ago on how luxury car brands compete with Mutual Fund Systematic Investment Plans (SIPs) went viral and got him a lot of flak, brushes off the controversy, but points out that though Indians are still hard-wired to save if “the economy keeps growing and the value proposition that brands like ours offer is enhanced in the minds of buyers, sales can only go one-way. Up!”

@kushanmitra is an automotive journalist based in New Delhi. Views are personal.

(Edited by Anurag Chaubey)

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