Mumbai: Rising incomes and a young population eager to flaunt its wealth are combining to fuel demand for luxury cars in India, but sales still lag emerging market peers China and Russia by a wide margin.
The acquisition of marquee brands Jaguar and Land Rover by Tata Motors Ltd this year signalled India’s serious intent in the small but rapidly growing segment of luxury cars, once the exclusive preserve of royalty and business barons.
Steep import tariffs, the relatively late entry of luxury auto brands such as BMW and Audi, and a traditional reluctance to splash out on fancy cars meant sales in India were relatively small, despite a population of 1.1 billion. “No one wanted to draw attention to their wealth before,” said Neeraj Bandhu, director of research firm CSM Worldwide.
“But younger consumers today want to show they’ve arrived, and luxury cars are seen as desirable status symbols.”
The luxury car market in India, loosely defined as cars priced above Rs20 lakh, clocked up sales of 3,500 units last year, and is expected to jump nearly 80% to 6,200 units this year, according to JD Power and Associates. “It is the fastest growing segment in the market,” said Mohit Arora, senior director at JD Power in Singapore.
This market is likely to edge past Thailand and draw level with Malaysia this year, and will soon overtake Singapore’s sales of about 10,000 units a year, Arora estimates.
That is still a far cry from China, where such sales are expected to rise to about 233,000 units.
“We can’t bank on too many numbers,” said Tata Motors’ managing director Ravi Kant, speaking of prospects for Jaguar and Land Rover, which the company bought for $2.3 billion (Rs10,097 crore at current exchange rate).
Rolls-Royce, returned in 2005 after a gap of 50 years with the Phantom super luxury sedan. Ford Motor Co.’s Volvo launched the S80 sedan and XC90 sports utility priced at up to Rs52 lakh, while Mercedes is doubling its capacity to 5,000 units. BMW aims to sell 2,000 cars this year, twice its 2006 target, and Audi, expects sales of 3,000 units by 2010.
“The mean age of car ownership in India has fallen to 35 years from 38 years,” JD Power’s Arora said.
Car makers including Mercedes-Benz, BMW and Audi assemble their lower-end vehicles to draw more buyers and import premium offerings. But import duties on new cars are nearly three times the 25% tariffs in Russia and China. “If import tariffs are cut, there will be a big jump in sales, as these cars already have a following here and even very wealthy Indians still like a good deal,” CSM’s Bandhu said.