Riding high on aspirational mood

India rising

According to a recent report on the luxury segment in India, the luxury car segment, which is averagely priced at  `25-30 lakh, has been growing at an average rate of 20 per cent or above during the recent years. Such figures are like a breath of fresh air in the market, also proving that the segment has hardly been affected by the global meltdown. The entire luxury market is currently a one billion dollar business and moving forward; the signs of major prominence in the future are feasible. “In India, the luxury category is a very small market. This segment is primarily concentrating on an elite class,” says Dipen Shah, Head – Fundamental Research, Kotak Securities. At present, the luxury car segment accounts only for 3-4 per cent of total car sales in India, but the factor that lures the international majors is that this segment was growing at over 25 per cent (according to 2009 sales), which is much higher than the growth of the small passenger car segment over the last few years. According to experts, the growth of luxury car sales is driven majorly by increased wealth-creation within the average Indian population and the desire of individuals to join the millionaire-club by flaunting their wealth. In addition, the average age of an Indian millionaire has come down to 35-40 years from the earlier average of 50 years.

Exciting times ahead

The luxury car segment is set to grow further as there are many new cars lined-up for launch during the period 2010-2012, with approximately 50–60 new models from major global brands to be unveiled. Tata Jaguar, Lexus, Bentley and Fiat are some of the players who would be seen as aggressive entrants with their high market experience. The market future will not only be driven by the product itself but also by the services aspect being offered. This is bound to intensify the level of competition among the stalwarts. According to the Society of Indian Automobile Manufacturers (SIAM), the luxury car market grew at over 50 per cent for the first four months of the ongoing fiscal year. However, a tepid response to expensive flagship machines like Audi A8, Merc S Class and BMW 7Series and exotic models like the BMW 6 Series convertible, Audi R8 and Merc’s E-Cabrio and SL Roadster — all in the “Rs 1 crore and above” price bracket – have tamed growth. Mercedes-Benz aims at 10-fold sales growth by 2020, even as BMW and Audi battle fiercely for market share. The German luxury car maker, Audi, is facing competitive heat in India from compatriots BMW and Volkswagen and is looking at investing  `1,000 crore to enhance capacity and increase sales here 10-fold by the decade’s end. Mercedes-Benz India Ltd (MBIL) wants to grow its sales over three-fold to 25,000 units by 2016 and to 90,000 units in the next 10 years. Initiating this stance, they have lined-up two volume-driving models in the Indian market every year. Also the B Class hatchback is expected to hit the shores by the end of 2012, which will be followed by the inclusion of A Class in 2013. All three cars are expected to be tagged at  `20-25 lakh, lowering the price barrier for consumers aspiring to get into the brand. To keep prices competitive, Mercedes is seriously considering the localisation of products.

Change of guard

Mercedes-Benz was dethroned by archrival BMW last year. After being the definite leader of the luxury auto business in India for more than a decade, BMW edged out Mercedes again last year by posting sales of 9,371 cars versus Benz’s 7,430. Within just five years of entering the Indian market, BMW has made its presence felt in the market. Also, with the likes of Audi entering the luxury car market in India, the future looks bleak for Mercedes-Benz. Mercedes, at present, does not have a model below the C Class, which is priced between  `26 lakh and  `33 lakh (ex-showroom, Delhi).This is where BMW has taken a march in the right step by offering the X1, a compact SUV, priced upwards of  `22.5 lakh (ex-showroom, Delhi) and Audi is expected to follow suit sometime next year. Last year, till November, BMW sold 2,344 units of the X1, accounting for around 30 per cent of its overall sales. Around 21,000 luxury vehicles were sold in 2011 and this is slated to increase 10-fold to 200,000 units over the next 10 years. Mercedes intends to take 35 per cent of the market by the end of the decade.

Luxury goes affordable

An increasing number of young entrepreneurs and professionals from various fields are buying luxury cars and this affluent segment has been boosting sales volumes. If we look into city-wise wealth distribution, the northern region in India, which comprises of Delhi, Chandigarh, Ludhiana, Shimla and Jalandhar, constitutes a higher density of millionaire population than the rest of the parts. “The historical regional sales data of luxury cars sold in India shows that 32-35 per cent of the total was sold in the Delhi region only. This is possibly due to the psychological preference shift among the north Indian population to show off their wealth,” says Shah. The many tax regulations, which are in the pipeline for reducing the pricing of these brands, and the consumer possessing superior disposable cash guarantee that the future of the luxury car segment in the country is set to take an upward swing and form a critical part of the automobile industry in India.