Make In India: Local assembly key to success in luxury car market

Published: February 21, 2015 12:03:20 AM

Both Audi and Mercedes are focusing on new launches, network expansion, and are increasing dependence on local assembly this year

India has lately seen a sharp rise in demand for all things exotic and expensive. And where else is this most evident but in the world of luxury cars. The segment is just 1.5% of the 2.6 million Indian passenger car market, but at a growth rate of double digits it is one of the best places for an automaker to be in. The segment’s significance can be judged from the fact that, after China, luxury players are hoping for India to erupt on a large scale.

At present, it is clearly a product-based growth. Just two years ago, BMW was busting the pole position but now the tables have turned, with Audi leading and Mercedes-Benz following closely.

Offering the latest global products in the Indian market has significantly impacted the sales of Mercedes-Benz. For instance, the new C-Class was launched in early 2014 in Europe and in November in India. Similarly, the launch of the GLA-Class and the CLA-Class has given the Stuttgart-based company much-needed volumes. One of the reasons for this success is product-onslaught—last year Mercedes launched 10 new models to keep the consumer engaged. It also increased the number of sales outlets in an effort to reach out to potential customers even in the tier-2 and tier-3 cities. The company inaugurated 14 new outlets last year and also set up AMG Performance Centres for the enthusiasts. The story is expected to continue this year as the company has come out with a new strategy called “15 in 15”. It revolves around opening 15 new outlets and 15 model launches in 2015. The company grew 13% last year—it sold 10,201 units in 2014, compared to 9,003 in 2013. The expansion of capacity to 20,000 units means that the company not only is bullish about India, it also signifies that it will increase local assembly in India.

Audi started sales in India in 2004, way behind Mercedes-Benz but not behind in realising the potential of the Indian market. It started with CKD sourcing and added its local assembly in 2007. Audi has become the first luxury car company to cross 10,000 unit sales in a year for two consecutive years, and most of its vehicles sold in India are being assembled locally. Today Audi is the market leader in domestic luxury car production and locally produces the A3, A4, A6, Q3, Q5 and Q7 in Aurangabad. In fact, of the total volumes the company sold in 2014, over 90% were built locally. Audi also kept its focus on opening new showrooms. The expansion momentum is expected to continue in 2015 and the company will launch 10 new vehicles this year. But Audi has to keep in mind that Mercedes-Benz is fast catching up—the sales gap between both the companies in 2013 was about 1,000 units, which reduced to 650 units in 2014.

This year the silent aggression between the two companies is expected to enter a new phase. With new vehicle launches, continuous expansion of dealer network, increasing dependence on local assembly and reducing sales gap, both rivals are headed straight into each other’s turf.

Gaurav Vangaal

The author is analyst, IHS Automotive

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.