It may be rising aspirations, rising incomes, or both, but the market for luxury cars in the country is robust, and likely to grow, as per manufacturers and analysts. Sample this: In calendar year 2018, 40% buyers bought a Mercedes-Benz car in the price range of Rs 40-50 lakh, 48% bought a car priced Rs 50 lakh-Rs 1 crore, and only 12% bought a car priced Rs 1 crore upward. But in the current calendar year, only 24% buyers bought cars priced Rs 40-50 lakh, 47% bought a car priced Rs 50 lakh to Rs 1 crore, and 29% spent Rs 1 crore and above on a super-luxury car.
“This shows that the luxury car market in India is maturing,” Martin Schwenk, MD & CEO, Mercedes-Benz India, told FE. Mercedes-Benz forms around 45% of the Indian luxury car market, and while other carmakers in the space (BMW, Audi, Jaguar Land Rover, Volvo and Lexus) didn’t share their individual sales data by price, automotive analysts said buying ‘more expensive’ luxury cars is on the rise.
“Growth in the economy, as well as ever-increasing high net-worth individuals creating a bigger pool of buyers — including in tier-II and tier-III cities — are major contributing factors towards the growth of the luxury car segment,” said Saket Mehra, partner & auto sector leader at Grant Thornton Bharat.
“The expanded customer base comes from first-generation entrepreneurs (as opposed to third- or fourth-generation earlier) with growth in start-ups and higher salary packages offered to students from top colleges.”
He added that within the luxury car segment, there is an increased affinity towards more premium models, rather than entry-level cars. “As the average age of the potential clientele shifts from 45 years to mid-30s, there is a demand for improved features and functionalities that are available in higher-end models. Coupled with convenient financing options for cars, the demand for higher-end models within the luxury segment is picking up in India,” Mehra said.
The average age of a luxury car buyer in India is far lower than in the developed markets. For example, the average age of the Mercedes-Benz S-Class buyer in India is just 38 years (the S-Class is priced above Rs 1.6 crore, ex-showroom), while in developed countries it is upwards of 45 years. “India has a decent sized young crowd that has the buying power and interest in super-luxury cars,” Schwenk said.
As per a recent report published in Research and Markets — the world’s largest market research store — with the Indian economy resurging from the pandemic, the luxury car market is expected to reach a size of $1.54 billion by 2027, up from $1.06 billion in 2021, registering a CAGR of 6.4%.
Economist Madan Sabnavis added that this trend of buying higher end products within the luxury space isn’t limited to cars, but is seen across the board. “From houses to watches to big fashion names, the rich are splurging,” he said. “The class of customers that can afford cars worth Rs 1 crore and above wasn’t, in general, negatively impacted by the Covid-19 pandemic. But those who want to ‘enter’ the luxury car segment and who buy entry-level models priced under Rs 50 lakh are usually upper middle class people, and this class was relatively more impacted by the pandemic.” He added that there is a pent-up demand in the super-luxury segment, across the board.
Schwenk said this trend of people buying more expensive luxury cars will continue. “India has a growing crop of young new millionaires and that will drive demand for luxury cars,” he said. “These include young entrepreneurs and high-earning professionals who appreciate the luxury element and technology they get in high-end luxury cars.”
An automotive analyst added that earlier a section of buyers entered the luxury car segment just for the sake of it. “The Audi Q3 was hugely popular some years ago. It was a small and cramped luxury car but with the Audi badge. A section of customers bought it over a similarly priced big car from a mass-market player such as Volkswagen or Toyota,” he said. “That trend has faded away. Luxury cars are everywhere. A small Audi or a BMW doesn’t make you stand out. Today, a luxury car buyer knows that he isn’t buying the badge, but the quality, and is ready to open his purse for that. Attractive finance schemes also help.”