Mercedes-Benz India’s Roland Folger on how demonetisation impacted the luxury car market
On 8 November 2016, the eve of the launch of our most glamourous set of wheels, the S-Cabriolet and the C-Cabriolet, in New Delhi, came the announcement of demonetisation by the Prime Minister. One year on, the jury is still out on whether the move was a success or not in meeting its strategic aims.
To be sure, it has had a significant impact on the luxury car industry. Demonetisation forced consumers to think rationally about a purchase that is almost always heavily influenced by sentiment.
A self-made entrepreneur might reward himself with a Mercedes-Benz for achieving success in his business. Or an aspiring young executive might decide on a new generation Mercedes-Benz car to proclaim to his peers that he has arrived.
A leading architect may opt for a luxurious, go-anywhere sports utility vehicle that fits in with his work and lifestyle.
But thanks to the sudden announcement on 8 November 2016, it didn’t quite happen that way.
With demonetisation, spooked consumers postponed purchase decisions for reasons such as the unavailability of sufficient legal tender (banks ran out of new notes), a lack of clarity on how long the situation would take to settle down, and possibly not to attract unwanted attention.
It had an immediate effect on our dealerships. Footfalls dropped by as much as 50% to 60% in November 2016.
This, at a time when Mercedes-Benz India was confident of growing in double digits despite the unexpected ban on vehicles with over 2-litre diesel engines in the National Capital Region for a prolonged period.
The net effect was that demand plunged and our anticipated sales were nowhere near what we had targeted at the beginning of 2016 —we closed with sales at 13,231 units in the year, which remained one of lost opportunity. We could not turn around in the New Year either.
The lacklustre sentiment persisted, with muted sales continuing even in the first quarter of 2017. However, we were convinced this was a move best described as short-term pain for a long-term gain for the economy at large.
Far from scaling back investments, we reaffirmed our commitment to the country, our employees and to our extended partner network.
We went ahead with our plans as scheduled, including the launch of high-end flagship models from our extensive global portfolio. As you read this, we are all set to introduce two more exciting models from our luxurious and powerful AMG line-up.
We have been investing in a stronger network for delivering a world-class ownership experience to Mercedes-Benz customers while in the background, we have been involved in skilling and training a new generation of Indians for technical competence in servicing our cars.
This attitude has helped us. From April 2017 onwards, we have seen customer sentiment gradually picking up and this was reflected in an uptick in sales from the second quarter of 2017 and in the first nine months of 2017, we have achieved record sales of 11,869 units. We are firmly on track with our plans and believe that we will be able to meet our target for this year and the luxury car industry will get that elusive growth story back.
India’s greatest strength lies in is its resilience. From my tenure here in India, I observe that the country has the ability to bounce back from difficult situations—and that is purely down to its strong fundamentals and the positive attitude of Indians. That can be seen with my Indian colleagues at Mercedes-Benz India; we as one team are charged up and energized about a brighter future.
The entire organization is aligned towards an exciting 2018, which will be filled with many more desirable products for our Indian customers and a host of substantial business initiatives. We also hope there will be no policy flip-flops and a steady policy framework would be created that would benefit all stakeholders.
Therefore, in the overall scheme of things, I see demonetisation as a temporary blip. Indeed, I’d say it’s a slingshot: pulling us back a bit in order to travel even further. As we’ve seen, the disruptions can be overcome. A move like this is a demonstration of what is possible if there is a powerful desire to take the economy to even greater heights.
Roland Folger is managing director and chief executive officer of Mercedes-Benz India Pvt. Ltd.