Home / Opinion / Views /  It’s unlikely SIPs are tripping up luxury car sales

Is an upper middle-class obsession with savings curtailing their current consumption, particularly of high-value products? Mercedes-Benz India’s Sales and Marketing Head Santosh Iyer thinks so. People are diverting money to Systematic Investment Plans (SIPs) of mutual funds, says Iyer, instead of fulfilling their luxury ambitions. Iyer is to take over as India head of Mercedes-Benz in January, but, with this statement, has a welcome mat laid out for him at the mutual fund industry, which is using the World Cup to push its ‘Mutual Funds Sahi Hai’ campaign

Saving consists of curtailing current consumption, so as to own assets that would yield future returns. So, in principle, Iyer’s concern has merit. But there are certain facts about India’s passenger sales market that make the Mercedes-Benz CEO-designate’s identification of the reason for the less than robust sales of Mercs a shade iffy.

One is that automobile sales have been picking up since the pandemic. For April-October, overall automobile sales are 21% higher than for the comparable period last fiscal. According to Maruti-Suzuki senior executive Shashank Srivastava, passenger vehicle sales in the April-October stood at 22.74 lakh units as compared with 16.48 lakh units last year, a growth of 38%. The luxury car segment saw sales of 25,000 units over January-September, an increase of 32% over the like period last year. The numbers do not quite reflect a picture of Indians turning abstemious in the present, so as to secure their future.

There could be other reasons for luxury car sales to not achieve the momentum their makers expect. The rupee has depreciated by roughly 9%, thanks to the strengthening of the dollar vis-à-vis most currencies of the world. It is not unreasonable to expect some of this loss of value against the dollar to reverse, once the interest rate regime settles down in the US and other major economies. This could happen if inflation loses momentum, the war in Ukraine loses steam and the Chinese start easing off on Zero Covid, spelling an end to arbitrary interruptions in production of things, for which the whole world depends on China.

Most luxury cars are imported as completely built units or semi-knocked down units, meaning there is little local value addition. So, their entire price is sensitive to the exchange rate. Further, high-end vehicles that cost more than $40,000 CIF (cost, insurance and freight, the landed cost before import levies) attract an import duty of 100%. So, if it is reasonable to expect the rupee to regain some of the value it had lost against the dollar in the not-too distant future, it will make sense to run with your existing model of luxury car till that revaluation of the rupee happens.

But this is generic to all luxury cars. Mercedes might have a problem specific to itself. Mercs have the largest market share of 42% in India. But that is also a downer for the younger set who can afford a high-end car.

The conscious young consumer, who might also be rebellious at heart, to the extent they want to be seen in a luxury car at all, don’t want to be seen in a car that is seen everywhere. They might make choices that express their individuality more. Much like LV bags, popularity or success can be a curse in luxury goods.

Placing the blame at the savings habit of the Indian consumer might be a tad misplaced.

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