New Delhi: The rush for new car launches continues with all the world’s automakers wanting to be in India. Despite market and fuel price uncertainties, automotive growth rate remains impressive.
Murad Ali Baig, auto expert and columnist
1.55 million passenger vehicles (including 334,000 UV’s and SUV’s) were sold in India last year representing a growth of 12% over 2006-07. Although hatchbacks commanded bulk of the sales, the luxury segment is registering nearly 100% growth rate. Cars in this category which on an average cost over Rs25 lakh sold 3,200 cars in 2006 and 4,300 in 2007 and are likely to cross 8,000 units in 2008.
German brands like Mercedes-Benz, BMW and Audi dominate the luxury car segment worldwide. They also own some of the best known super luxury brands. BMW owns Rolls-Royce, Volkswagen has Bentley (and also Audi) while Mercedes has had to create a new super luxury brand with the Maybach.
Together, they command about 80% of the world’s luxury brands that include popular cars like Lexus, Porsche, Jaguar and Volvo. There is also a smaller but lucrative market for costly sports car models like the Porsche, Ferrari, Lamborgini, Bugatti and several smaller special brands.
Manufacturing plants come up in India
In India, Mercedes-Benz had set up a manufacturing plant in Pune in 1996 and has long been the unchallenged leader for upwardly mobile Indians seeking a luxury car. They are now facing stiff competition after BMW who set up an assembly plant near Chennai in March 2007. Audi is following suit and will be assembling their new A4 and A6 models at the Skoda plant at Aurangabad (also owned by VW) before shifting to Pune, at the biggish Volkswagen plant that is slated to come up.
Mercedes assembles C Classe, E Classe and S Classe saloons while BMW assembles the competing 3 Series and 5 Series models and imports the & Series. Local assembly brings down taxes but all three automakers sell their more expensive imported luxury models like the 7 Series BMW as well as their luxurious SUV’s and sports coupes.
Imports from luxury automakers
The rapid growth in India’s luxury segment is attracting imports from other luxury automakers, even though they do not expect to have volumes that can justify local assembly. Porsche plans to sell 400 Cayenne SUV’s and Carerra or Boxter sports cars this year while Volvo aims to sell 500 of its XC90 SUV’s and S80 saloons. In addition there are several high end cars from Lamborgini, Land Rover and Volkswagen to tempt the rich. Post Tata Motors bringing in Jaguar, we can confidently expect a few hundred Jaguar models to be running on India’s roads, within the year.
Growing interest in super luxury brands
According to car dealers there is growing interest in super luxury brands like Bentley, Rolls-Royce and Maybach that cost more than three times the cost of the top luxury brands.
Paul de Voijs, managing director, Volvo Car India says, “India is no different from other emerging markets. We had the same experience in China and Russia where the luxury class grew much faster than analysts’ expectations. Markets do not always expand in a uniform manner. Some segments grow much faster than others.”
Peter Kronschnabl, president, BMW India echoed the same thought, “We sold 1,360 cars in 2007 and had set a target of 2,000 for 2008 but have already achieved sales of 1,563 by June, encouraging us to revise our target to 2,800 units.”
The segment leader Mercedes-Benz, achieved sale of 2,300 units in 2007 and set a target of 3,000 units for 2008 but have already hit 1,800 sales during the first half of the year and this target will be further revised. Meanwhile, Audi sold 380 cars last year and has already sold 460 units in 2008. They are confident of selling 1,000 units in 2008.
Ensuring spare part availability through strong dealer network
Luxury car buyers are however a fussy lot and demand perfect service and spare parts availability. To meet this need, Mercedes-Benz has 15 (ISI certified) dealers and dedicated workshops spanning 27 Indian cities. They have recruited services of professional companies that have equipped service vans with trained mechanics rendering round-the-clock service to customers.
BMW has 12 dealers and another three will be added this year. Every BMW dealer has a dedicated recovery truck that can pick up a customer’s car from nearby towns for service or repairs at fully equipped workshops. Audi has seven dealers in place and plans to raise these to 12 by the year-end.
The business model for dealership for luxury cars is very different from those dealing with ordinary cars. Every new dealership must be ready to spend around Rs6 to 10 crore in setting up huge dealer showrooms at prime locations. The costs include special tools worth over Rs3 crore. Additionally they have to finance expensive stocks and cost of a fleet of test cars.
Psychological factors play the role of influencers in the luxury car market. Most car makers set up dealerships in towns like Bangalore and Chandigarh before setting up shop in Chennai or Kolkata because customer profile in the latter set of cities indicates conservative spending patterns with feelings of guilt on flaunting wealth via fancy wheels.
Customers in the north, on the other hand are seen to be more forthcoming and eager to display their prosperity. Also towns like Bangalore, Hyderabad and Gurgaon which house large foreign IT and BPO businesses has a growing market of luxury car owners.
Almost 40% of the luxury saloons bought in India are in the smaller Mercedes C Classe, BMW 3 Series or Audi A4 segment. These are cars between 4.5 and 4.75 metres long (like the Honda Civic or Toyota Corolla) in an ex-showroom price range between Rs25 to 35 lakh.
Over 40% is the rough share of the bigger Mercedes E Classe, BMW 5 Series or Audi A6 models (comparable size wise to the Honda Accord or Toyota Camry) in a price band of Rs40 to 50 lakh.
Over 10% sales go to the Mercedes S Classe, BMW 7 Series or Audi A 8 segment of cars over 5 metres long and costing between 75 to 150 lakh. Many of these sales go to hotels and travel companies who are permitted to import them duty free.
A little less than 10% goes to imported SUV’s like the Mercedes M Classe, BMW X5 and Audi Q7 and sports cars like the Mercedes SL or SLK, the BMW 6 Series or Audi TT sports coupes. The super luxury saloons like the Bentley, Rolls-Royce and Maybach cost between Rs2 to 4.5 crore.
The main reason for this market buoyancy is because many segments of the Indian market are getting quite rich quite fast. One should see beyond the national average growth rate of 8%, that is pulled down by slow growth in agriculture and mining, to understand that there is a roughly 18% annual growth rate in the urban middle and upper class incomes as reported by several research studies.
Murad Ali Baig is one of India’s foremost auto experts. Feedback to his column can be sent at email@example.com