Luxury cars – Mercedes Benz, Audi, BMW and Volvo Cars – in tier 2 and tier 3 cities have clocked double-digit growth in the last five years. And the companies are rapidly expanding their sales and service network in these markets.
By Pritish Raj
Outpacing the growth in metros and big cities, small towns like Ludhiana, Vadodara and Guwahati are seeing brisk sales of luxury cars. Volvo, for instance, now sells half of its cars in non-metros – five years ago, this share was negligible. Till 2014, tier 2 and 3 cities contributed a shade under 5% to Audi’s overall sales but now that share has jumped to 25%. For Mercedes Benz, the share over this time has grown from about 5% to 30%.
Sales of high-end cars are being driven by strong affordability and aspirations. Luxury cars – Mercedes Benz, Audi, BMW and Volvo Cars – in tier 2 and tier 3 cities have clocked double-digit growth in the last five years. And the companies are rapidly expanding their sales and service network in these markets. Charles Frump, MD, Volvo Car India, confirmed that his company has been growing the dealership footprint in places like Raipur, Indore and Calicut. “It has worked well for us so far as almost 50% of our sales now comes from these cities,” Frump said.
Audi India, the first to open dealerships in markets like Jammu, Ranchi and Guwahati, is actively opening outlets in tier-3 markets. Rahil Ansari, head of Audi India, said that over the last few years, the volume contribution from tier-3 cities had grown in double digits. “Some tier-3 cities like Rajkot, Vadodara, Guwahati, Bhubaneswar, Vishakhapatnam and Ranchi are growing faster than the industry average,” he added.
Martin Schwenk, MD & CEO, Mercedes-Benz India, said he sees immense potential in the tier-2 markets. “We have opened dealerships in cities like Bhubaneshwar, Jamshedpur, Mysore and Jodhpur,” Schwenk said, adding that the company will set up more of these outlets in tier-2 and tier-3 markets. A BMW India spokesperson confirmed that demand in tier-2 and tier-3 cities has grown rapidly and these markets promise remarkable growth prospects. “Chandigarh, Kochi, Jaipur, Goa and Lucknow are among the leading emerging markets where demand for BMW cars is very strong,” the spokesperson said.
Meanwhile, Delhi and Bombay continue to remain top markets for brands like Mercedes-Benz and BMW although their share of the overall sales may have fallen over the last five years. For instance, the contribution of Mercedes-Benz India from Mumbai and Delhi has fallen to below 50% from around 70% in 2010. Analysts said the reason for more traction in smaller towns is also because of newer variants in similar price brackets, while the spending capability of consumers has grown manifold. To put things in perspective, starting price of a 2018 Mercedes Benz car (A class), which was updated several times, now comes with a price tag of around `27 lakh. It was priced at almost the same levels in 2014. The same is true for BMW.
Similarly, an Audi A3 now comes with a price tag of about Rs 33 lakh. “In India, the threshold for luxury cars starts at over Rs 25 lakh and no carmaker wants to lose this opportunity,” said Gaurav Vangaal, senior analyst-forecasting, IHS Markit.