1. Despite slow car sales, luxury still in demand

Despite slow car sales, luxury still in demand

Though car sales have been moving in the slow lane for the last 2-3 years, the luxury variants have been doing relatively well.

By: | New Delhi | Published: July 14, 2015 12:53 AM
Currently, 33,000 luxury cars are sold annually in the country and volumes are expected to grow three-fold by 2020. It is projected that in the current fiscal, sales in this segment would grow by 15-16%.  (Reuters)

Currently, 33,000 luxury cars are sold annually in the country and volumes are expected to grow three-fold by 2020. It is projected that in the current fiscal, sales in this segment would grow by 15-16%. (Reuters)

Though car sales have been moving in the slow lane for the last 2-3 years, the luxury variants have been doing relatively well. The projections are that there would be a further growth in the years to come, which has led the luxury car makers line up additional capacity and beef up their dealership networks.

Currently, 33,000 luxury cars are sold annually in the country and volumes are expected to grow three-fold by 2020. It is projected that in the current fiscal, sales in this segment would grow by 15-16%.

According to Mercedes Benz India MD and CEO Eberhard Kern, luxury car volume will increase to 40,000 units in the current fiscal.

Companies like Mercedes Benz and Audi have plans to launch more than 10 products in India in the current fiscal. Last month, Mercedes Benz enhanced its production capacity at its Chakhan plant to 20,000 units per year. The company has started to assemble more cars to deal with the increasing demand.

Gr4

With import duties and other taxes levied on imported cars at 130%, manufacturers are trying to increase localisation of the products sold in India. Increasing disposable income with a section of the population, which is the target audience for such products, is aiding the growth of luxury cars in the country.

“The luxury car segment is not adversely impacted by inflation or high base rate maintained by banks. High disposable income of the affluent business community and the top end of the white collar work force is also aiding the growth. These OEMs may face challenges with high growth in the next five years once their base increases in the domestic market,” said Kumar Kandaswami, senior director, Deloitte India.

Within the luxury space, manufacturers are focusing on entry-level models that are priced at between R22 lakh and Rs 30 lakh; this is the biggest sub-segment, accounting for 50-60% of the total volumes of the luxury car segement.

The three German luxury car makers are expanding their dealer networks in the tier-2 and tier-3 cities to realise their full potential.

The luxury car makers are also providing finance to the prospective buyers. Some of the OEMs have 30-40% of their dealerships outside the major cities. “They are focusing on cluster cities which are located near four or five cities, in the developed states like Tamil Nadu and Punjab,” said Abdul Majeed, partner, PricewaterhouseCoopers.

Kern said, “We have grown at 40% in the January-March quarter and a double-digit growth is achievable since we have newer products. There also has been an overall positive sentiment amongst our customers based on a surging economy and rising income levels,” Kern said.

According to rating agency Icra, excluding Maruti Suzuki volumes, domestic passenger car volumes shrank by 1.3% year-on-year in FY15, suggesting the recovery has not been broad-based and has been restricted to few.

“We currently produce the Audi A4, Q5, A6, Q7, Q3 and A3 sedan locally. More than 95% of our sales volumes are built locally. We have a significant capacity currently with 14,000 units per annum on a single shift,” JoeKing, India head, Audi, told FE in an interview last month.

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