New Delhi: The luxury car market in India is struggling, with increased import duty and higher goods and services tax (GST) levied on such vehicles slowing growth. Mercedes-Benz India Pvt. Ltd has, however, managed to establish itself as the leader in this space with 15,538 units sold in 2018. Demand is likely to revive in the second half of this year, Martin Schwenk, managing director and chief executive of Mercedes-Benz India, said in an interview. Lower taxes in India will not only help the company sell more cars in the country, but also benefit the overall economy, Schwenk added.
What is your expectation for the current year?
The luxury car market in India as per size is not as big as it could be. We are still just 1.3% of the total passenger vehicles sold in the country. This year, the first half will be muted and the second half will be a little bit higher. We reviewed the consumption pattern whenever there are elections, in terms of passenger and luxury car sales.
I understood that whenever there is an election there will be limited or no growth, and even a decline, and people will be hesitant to do major purchases. Once the new government is formed then, after some time, we will see substantial growth happening. I believe we will see a similar trend this year. We are cautiously optimistic, but it depends strongly on the second half. I am quite certain that quarter one will be weaker than last year. Overall, with the new products, we have set the tone, but the next three to six months will be crucial.
Is the emphasis more on ensuring profitability in India?
Profitability at least in two layers is important for us. First, regarding our dealer partners, we need to have them in a strong and viable position and only then can we reach out to the customers. On the other hand we need to ensure profitability as a company. If I cannot make profit then I won’t be able to get the cars, because as subsidiaries, we also compete in the global scenario. The one who makes most with the cars gets the cars. Almost 80% of our cars are locally produced and we have a very modern efficient factory in Pune. However, the burden put on us as import duties and increased cess on goods and services tax (GST) rates, definitely has an impact on pricing and customer perception.
What has been the impact of the increased import duty of automobile components and increased GST rate?
The tax and duty structure have an impact on us, that is, we don’t sell many more cars here. With the introduction of the GST, a few percentage points lower, there was an immediate pickup in demand. It becomes a chicken and egg kind of a problem. If you do not have volume it makes no sense to localize. You think of the big body parts of a car and if one has to manufacture components locally, the volume is required. So, if the taxes are too high, then the volumes become low and then it is difficult to do the localization of parts. Also, the bottom line for the taxman would be better if we can have a little bit of leeway and could put in more volume and get more localization out of that.
Will vehicles manufactured in India be exported to the US as a result of the prevailing trade war?
For Mercedes, as a company, we try to produce where we sell. That’s the core philosophy, but our production network is flexible. So, if there is a need for cars in one area of the world and we have the capacity to build the cars, then we will do that. For example, we have in the past produced GLCs for the US market, but that is not based on a master plan of tariffs. It depends on the overall layout and production capabilities you have in different locations. Tariff and tax structure always have an impact and every manufacturer will look into different opportunities.
What about bringing electric vehicles in India?
Globally, we have the CASE (Connect, Autonomous, shared and electrified) strategy but traditionally India as a market based on infrastructure and overall development is not at the forefront of that. So, there is some catch-up that is happening but in other part of the world Mercedes at the moment has developed a product portfolio of plug-in hybrids and electric vehicles and in the coming years we will see many more.
Here, I don’t get calls about supplying an electric car but I get requests for a Maybach 650. So that means demand is still slow but there is potential to develop. The advantage for us in India is that we can follow how it pans out in other regions. There is no need for me to become the first market to introduce an electric car. I can calmly wait and see how it pans out in markets such as the US, Germany or China.