Diesel has a log way to go in the Indian premium car segment: BMW India, President (Act) & CFO | Interview

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Published: May 20, 2019 3:43:56 AM

Maruti Suzuki’s was a bold announcement. But this development (the shift away from diesel as a fuel for cars) is less pronounced in the premium car segment

Diesel, Indian automobile sector, BMW India, BMW India President,  Audi, JLR, Lexus, Volvo, Force Motors“The car market is changing like never before, even for premium cars,” says Hans-Christian Bärtels, acting president & CFO, BMW India.

The Indian automobile sector is passing through its roughest phase in eight years, with passenger vehicle sales in April 2019 dropping 17% over a year earlier. The niche premium car segment, comprising of companies such as Mercedes-Benz, BMW, Audi, JLR, Volvo, Lexus—which has grown faster than mass-market cars over the years—has also been negatively impacted. Market leader Mercedes-Benz recorded 8.4% dip in volumes in FY19 (14,867 units sold), and in January-March 2019 its sales declined 14.7% to 3,885 units, as rising interest rates, liquidity crunch and rising costs weighed on customer demand.

BMW India, however, saw growth around the same period. In CY2018, its sales grew 13% to 11,105 units, and the Bavarian company reported highest-ever January-March quarter sales (2,982 cars), a growth of 19% over a year earlier.

Disruptive developments

“The car market is changing like never before, even for premium cars,” says Hans-Christian Bärtels, acting president & CFO, BMW India. “Yet we see India as a market with massive growth potential. What people tend to do is look at China and other growing markets in the past, and try and copy-paste that strategy in India, which is not the right thing to do.”

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By ‘change’ he implies disruptive developments such as electrification, shared mobility and so on. “To grow, we have to keep these disruptions in mind,” he says, adding, “As of now, it’s difficult to predict if customers will step away from ‘ownership’ as their top preference when it comes to personal mobility, or if they will want to own a car for a few months, or even if they will prefer a particular body type or not. This is happening right now in the US, and India could catch up quickly.”

Apart from rising interest rates and liquidity crunch, premium car market is also impacted by foreign exchange rates and government policies. “These challenges exist, but we, at BMW India, will do what we know best: Bring in aspirational products and be the most customer-centric premium car company, and growth will come by itself,” says Bärtels.

Car ownership

It has often been argued that the millennial generation, which has started spending big, is not as interested in buying cars as the previous generation did. But Bärtels is of the opinion that, as of now, Asian markets are not yet at that level of shifting preference from ‘ownership’ to ‘experiencing cars’. “But this will come. How fast it will come, we cannot predict. Our strategy is to be ready for anything.”

Localisation levels

In 2015, BMW India partnered with major Indian auto component suppliers—Force Motors, ZF Hero Chassis, Draexlmaier India, Tenneco Automotive India, Valeo India, Mahle Behr and Lear India—for sourcing of components for local production of cars at the company’s Chennai plant, raising localisation levels from 20% to 50%. “Our International Purchasing Office keeps identifying local vendors to contribute parts for our cars globally. The higher we localise, the cheaper it is for us. But more than localisation, foreign exchange rates have a bigger impact on our business. When I came here, the rupee to euro was 69, it went up to 85 and now it’s 78,” Bärtels adds.

While in developed markets the share of premium cars is 5-6% of the overall market, their share in India is 1.3%. “I think it’s because of high taxes on premium cars,” Bärtels says. “Our profitability is limited. We are not here to earn a lot of money per model. That’s a short-term approach. We are here to develop the premium car market.”
Premium electric cars

Competitor Audi India might launch its electric car, the e-tron, by as early as next year. BMW India, however, hasn’t been as vocal on EVs. Is there a market for very expensive electric cars in India? “As of now, I don’t think there is a market for such cars, but that could change. It depends on regulatory and economic environment, followed by a mind-set change. One influences the other,” Bärtels says. Explaining, he adds: “Once subsidies or preferential treatments kick in for such cars, it can send out a signal that the country is on a journey towards a certain target, and that can change the mind set of customers. The EV technology is set to become more affordable, the driving range will increase and public charging infrastructure will become more widespread. So, all concern areas will slowly disappear. The key is how quickly will it happen? Electric and hybrid cars are a part of our master plan.”

Leadership position

In January-March 2019, BMW India (2,982 units sold) closed the gap with Mercedes-Benz (3,885 units). However, Bärtels says leadership position is not the target per se. “It’s something that might happen, and should happen, as we grow. Our growth over the last four years hasn’t really happened because of certain targets, but because of us focusing on the right things—customer-centricity, sustainable development of our dealer network, bringing the right products to the market, right engines, improving processes internally, major developments in IT and customer interface, and so on. You can do a lot of things as part of your business essentials and these will pay off. Sales numbers will follow because you are focusing on the fundamentals,” he says.

Diesel versus petrol

Maruti Suzuki will pull the plug on diesel cars from April 1, 2020, the day the BS-6 emission norms take effect. Tata Motors has said it may phase out small diesel cars from its portfolio. Globally, too, there appears to be a shift away from diesel as a fuel for cars. “I am not so sure it’s actually happening. That (Maruti Suzuki) was a bold announcement. But this development is less pronounced in the premium car segment,” Bärtels says. “We still have a high share of diesel vehicles in our mix. It’s likely to change and we are ready to cope with that. At the same time, there are also people saying diesel will find its way back to be more accepted and better understood.” He adds that today’s diesel engines are not as polluting as some believe. “This whole analysis is a little biased. We have the cleanest diesel engines you can think of.”

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