Luxury cars in India zoom, but lag China, Russia

Font Size

Print

Feedback

Email

Discuss

Related Articles

Mahindra eyes Rs 500 crore turnoverM&M hints at price hike on surging input costsToyota mulls setting up engine plant in IndiaMaruti to launch van to replace Versa

Mumbai, September 2:: Rising incomes and a young population eager to flaunt its wealth are combining to fuel demand for luxury cars in India, but sales still lag its emerging market peers China and Russia by a wide margin.

The acquisition of marquee brands Jaguar and Land Rover by Tata Motors Ltd this year signalled India's serious intent in the small but rapidly growing segment of luxury cars, once the exclusive preserve of royalty and business barons.

Steep import tariffs, the relatively late entry of luxury auto brands such as BMW and Audi, and a traditional reluctance to splash out on fancy cars meant sales in India were relatively small, despite a population of 1.1 billion.

"No one wanted to draw attention to their wealth before," said Neeraj Bandhu, director of research firm CSM Worldwide.

"But younger consumers today want to show they've arrived, and luxury cars are seen as very desirable status symbols."

The luxury car market in India, loosely defined as cars priced above 2 million rupees ($45,000), clocked up sales of 3,500 units last year, and is expected to jump nearly 80 percent to 6,200 units this year, according to JD Power & Associates.

"It is the fastest growing segment in the market," said Mohit Arora, senior director at JD Power in Singapore.

"The numbers are still small, but India is quickly catching up with its wealthier neighbours," he said.

Growth in the luxury segment has been helped by an economy expanding at nearly 9 percent on average in the last four years, and the entry of new players and launches from the likes of BMW, Mercedes-Benz, Porsche and Audi.

India's luxury car market is likely to edge past Thailand and draw level with Malaysia this year, and will soon overtake Singapore's sales of about 10,000 units a year, Arora estimates.

That is still a far cry from China, where luxury car sales are expected to rise by a fifth this year to about 233,000 units.

"We can't bank on too many numbers," said Tata Motors' managing director Ravi Kant, speaking of prospects for Jaguar and Land Rover, which the Indian company bought for $2.3 billion.

"But Mercedes and BMW are doing well in India, so there clearly is a market," said Kant.

Tata expects China to be Land Rover's No. 5 market this year and Jaguar's seventh largest, with Russia likely to be Land Rover's No. 3 and Jaguar's eighth biggest market.

For more on emerging auto markets, click

MILLIONAIRE BOOM

Growing wealth is attracting more investment by luxury brands on the sub-continent.

India had 123,000 millionaires in 2007, up more than a fifth from the previous year and posting the fastest pace of expansion in the world, according to Merrill Lynch/Capgemini.

Rolls-Royce, favoured by Indian royalty in the days of the British Raj, returned in 2005 after a gap of 50 years with the Phantom super luxury sedan.

Ford's Volvo launched the S80 sedan and XC90 sports utility priced at up to 5.2 million rupees, while Mercedes is doubling its capacity to 5,000 units.

BMW aims to sell 2,000 cars this year, twice its 2006 target, and Audi, which assembles the A6 sedan and will also build the A4 model, expects sales of 3,000 units by 2010.

Mercedes-Benz and BMW have tied up with ICICI Bank for loans to attract a new, younger consumer base.

"The mean age of car ownership in India has fallen to 35 years from 38 years," JD Power's Arora said.

"Consumers are willing to stretch themselves and splurge, while the earlier attitude was to invest in real estate or gold."

TARIFFS WEIGH

Carmakers including Mercedes-Benz, BMW and Audi assemble their lower-end vehicles to draw more buyers and import their more premium offerings.

But import duties on new cars are nearly three times the 25 percent tariffs in Russia and China.

"If import tariffs are lowered, there will be a big jump in sales, as these cars already have a following here and even very wealthy Indians still like a good deal," CSM's Bandhu said.

India's entry to the WTO is expected to lead to a cut in import tariffs. In the meantime, carmakers can tap India's low-cost manufacturing advantage for greater economies, Arora said.

"Today, the country of origin matters less and less, and India can be a good hub for exports to the Middle East and Southeast Asia, which together make up a fairly large market."