BMW to invest Rs120 crore this year to rev up India operations
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Mumbai: The Indian unit of German luxury carmaker BMW plans to invest Rs120 crore in 2017, launch the new generation 5-Series sedan, and expand its dealership network to recover ground it had ceded to rivals over the last four years, said Vikram Pawah, president BMW Group India.
Having pursued sustainable growth and profitability for the last three years, the company is now ready to move forward with the so-called “power to lead”, strategy which is about being the best in whatever it does, Pawah, the first Indian to head the local business, said in an interview.
One of the earlier entrants in India’s small but competitive luxury car market, BMW lost its leadership position first to Audi in 2013, and then to Mercedes in 2015, which currently leads the segment.
Pawah is now counting on the launch of new models such as the new 5-Series and the goods and services tax (GST), to make a strong comeback in a segment that accounts for less than 2% of India’s passenger vehicle market. BMW’s sales in India rose 14% to 7,861 units in 2016, after four straight years of sales decline.
Puneet Gupta, associate director at sales forecasting and market research firm IHS Markit, said, while last year’s growth was positive, the sales volumes were still less than what it was in 2011. “They have a lot of catching-up to do,” he said.
But Pawah, who completed five months in his role last month, is not worried and calls it a well-thought-out strategy. While the years between 2007 and 2009 were about building a strong foundation to secure its future in India, from 2010 to 2012, it focused on growth and achieving leadership in the luxury car segment and from 2013 till 2016, it consolidated its position with a clear vision of sustainable growth and profitability, he said. “India’s luxury car market is still very small, it should at least be 5% of the total market,” said Pawah.
The local arm of the Munich-based BMW presently has 63 touch points which includes 41 sales outlets and plans to increase the number of such outlets to 50 by the end of the current calendar year. It also plans to increase the number of mobile showrooms to 80 from 30 now.
After the new generation 5-Series, which is set to go on sale on 29 of this month, the company plans to bring 6-Series Gran Turismo (GT) in 2018. One out of three cars sold by BMW in India is a 5-Series. Therefore, Pawah is betting big on the new generation model for sales ramp up.
In the five months to May this year, BMW sales rose 8% to 3,533 units from a year earlier.
Pawah expects GST, which is set to be implemented from 1 July, to add further heft to the volume recovery in a market that has been subdued for the last three years. Sales of luxury cars—those priced between Rs25 lakh to Rs2 crore fell 4.24% to 33,279 units in 2016, the first fall in four years, as per IHS Markit.
In the automobile sector, premium car models are the biggest beneficiaries of GST. Under the current duty structure, a buyer of a luxury car or any other big car, including SUV, pays a total duty of up to 55%. With the maximum cess on luxury cars at 15%, and with a GST rate of 28%, the maximum duty one is likely to pay is 43%.
In a bid to ensure that buyers do not wait till GST roll-out to make a purchase, most of the luxury car firms have cut prices across the range of locally-made models, in line with the GST rates announced last month. Depending on the model and variant, while BMW slashed prices of five out of its eight locally made models from Rs1 lakh to Rs5 lakh, Mercedes reduced prices from Rs1 lakh to Rs7 lakh and Audi cut prices by up to Rs10 lakh.
IHS’s Gupta said the luxury car market will find its mojo from 2022 onwards when the additional cess of 15% on them gets removed and the rates become on par with other mass models. While announcing the GST rates last month, finance minister Arun Jaitley had said the additional cess is applicable only for 5 years. “That’s when we expect the base volume to become big. The current run rate of 7,500 to 14,000 per annum is not financially viable,” said Gupta. IHS expects the segment to expand 10% in 2017, the fastest in four years.