Luxury cars in India are expensive. Most models sold by carmakers like Mercedes-Benz, Audi or BMW attract 28% GST as well as 22% compensation cess (because most have engine capacity exceeding 1,500 cc and length exceeding 4,000 mm). Prices of a new Mercedes-Benz, for instance, start at Rs 44 lakh, ex-showroom (for the A-Class, a small sedan). Audi cars start at Rs 43.85 lakh (the A4), and BMW cars at Rs 43.5 lakh (the 2 Series Gran Coupé). Cars by Lexus, Jaguar Land Rover, Volvo and Porsche are equally or more expensive.
For such high prices, not all banks have dedicated financial instruments, and that’s why carmakers themselves are actively involved in financing. Brendon Sissing, MD & CEO, Mercedes-Benz Financial Services (MBFS), told FE that while banks do offer financing and insurance schemes for luxury cars, they may not necessarily be tailored to the specific needs of a luxury car customer.
Set up in 2011, MBFS has been a key contributor to driving the carmaker’s success in India. “MBFS offers flexible and customised financing option for customers,” Sissing said. “While banks do offer financing and insurance schemes for luxury cars, they may not necessarily be tailored to the specific needs of a luxury car customer. We also offer assured buyback value of a car (which banks don’t).”
MBFS is a wholly-owned subsidiary of Mercedes-Benz AG, and finances cars from the company’s own financial resources. “We do not tie-up with any specific bank or financial institution for financing our cars,” Sissing added. “This allows us higher flexibility to operate and provide customisable financing and insurance options to customers.”
Despite financial instruments offered by MBFS, a section of customers reaches out to banks as well, and some buy cars in cash. “About 20% of our customers buy cars in all-cash,” Sissing said. “Of the remaining 80%, MBFS finances 50% of the cars. It implies a significant portion of luxury car buyers prefer financing options to make their purchase more accessible.”
In addition to new cars, MBFS also finances pre-owned luxury cars. Sissing said purchasing a certified pre-owned Mercedes-Benz car with MBFS ensures peace of mind. The carmaker recently launched the Star Agility+ scheme under which a buyer can keep the car for a predefined period, exchange it for new car, refinance it, or hand it back to the dealer.
Santosh Iyer, MD & CEO, Mercedes-Benz India, told FE that there is increased affinity towards more premium and high-performance Mercedes-Benz models, rather than entry-level cars, and schemes such as Star Agility+ are contributing towards buyers opening up to more premium models.
“For example, under Star Agility+, a customer can own a Rs 60 lakh car for 36 months by paying EMI of just Rs 69,990, and this includes a maintenance package as well,” Iyer said. “After 36 months, the customer can exchange it for a new car, refinance it or return it to the dealer. For different cars, we have different schemes, but all of these have one thing in common — all are more convenient than regular car finance.”
