Mercedes-Benz India Pvt. Ltd has deferred product launches and made a significant reduction in inventory following a 16% decline in sales volume from January to September this year, said Martin Schwenk, managing director of the country’s largest luxury carmaker.
Schwenk, however, expects sales to remain flat year-on-year in the December quarter as a result of a recovery in October and November. Mercedes-Benz India will likely post a “reasonable growth" in sales next year, depending on how the domestic automobile industry makes the shift towards the stringent Bharat Stage VI (BS-VI) emission norms, he said. India’s government is keen to develop the electric vehicle sector, but manufacturers of luxury vehicles will need to generate volumes to justify the large investments. Edited excerpts from an interview:
Overall, how has Mercedes-Benz India been able to perform under the current circumstances?
For the first six months, we had a lot of problems in the market, especially coming out of a weak festive season last year. Then, we had expected that after the election, with the subsequent policy announcements, things would change, but overall in the first six months things did not go the way we had hoped.
In the end, we maintained our market share but couldn’t insulate ourselves from what was happening in the overall industry. From July- August onwards we tried to create some momentum and also tried to manage the market. In the first half, as sales were declining, we started discussing our inventory levels, and reviewed our plans for the second half of the year to make sure that we don’t get undue sales pressure on our BS-IV vehicles.
In August and September, we saw sales coming back, and volumes in October and November give me confidence that we will end quarter four in the same position as last year.
Given the prevailing slowdown in the economy, do you think next year will be better?
Besides our own efforts, we also saw a few activities from the government such as acceleration of depreciation on vehicles, efforts in improving the liquidity situation in the market, and reduction in corporate tax.
These are positive signs aimed for the entire society, but our customers should seek some benefit out of this.
Now, going forward, it will be very difficult to assess. The gross domestic product (GDP) growth is not what we had hoped for. So, while in the first half of the year there has been deferral of vehicle purchases, now customers have started buying again. For the next year, it will depend on how the transition to BS-VI works out. I still don’t think the full effect of the corporate tax reduction has come through. There is a potential for distortion in the market next year, but we will come back to some reasonable growth next year.
What was the strategy adopted by Mercedes to tackle the slowdown?
The first thing was to look at the inventory levels and make sure we have the product launches when we need them. Basically, we deferred a few product launches. Then we created certain offerings to help customers purchase our vehicles. In the end, we are focused on the long-term, and deferring does not mean taking out.
We reviewed our product launch schedules but are bullish going forward. We did not cut back on network expansion and have 95 dealerships in the country. Our stakeholders have spent more than ₹100 crore last year in network expansion.
We have reduced inventory and specifically reduced inventory in the dealer networks to lighten the burden as that impacts their bottomline directly. So, we worked closely with our captive financing arm and wholesale financiers. What we need to look at is that dealers are not highly leveraged and have some equity in the game because that insulates them from these kinds of liquidity issues.
How does the product pipeline look like next year?
We have managed our inventory pretty well, and it gives me the confidence to go back to the growth path and launch new models. I don’t think we will do similar deferrals. In principle, I don’t think we will have a year again like the current one.
In any year, the E and C class are the volume drivers, and with the GLE and GLC, another two major volume drivers will also come in. You will also see other refreshes in the SUV segment.
Do you think low volumes in India are an impediment for companies such as Mercedes when it comes to launching an electric car?
Let us stop discussing electric cars and discuss the size of the market and manufacturing itself. With a relatively low base last year, we sold 15,500 cars and that is not a big number to be a strong producer and seller in the market. The footprint would have to grow and that would certainly enable deeper localization and electrification and development of drivetrains. I think the premium automobile manufacturers have a problem of sheer size to have a viable business proposition for a stronger expansion.
We need to be interested in things such as free trade agreements with the European Union and harmonization of standards, which will help in technology transfer.