Gloom, Doom or Zoom? India’s Luxury Automobile Industry

The share of luxury cars in India — at an average 35,000-40,000 units in the last three-four years, or about 1.17% of the overall passenger vehicle market — is the smallest among the large economies. To be sure, there are more than 350,000 millionaires in India.

Suzuki Motor Corporation (SMC) has revised its consolidated business forecast for the current financial year by lowering net sales estimates by 10.3 per cent. "The company hereby revises the consolidated business forecast due to decrease in Japan production in the course of restructuring final inspection scheme, slowdown in Indian automobile market, and exchange rate fluctuations," SMC said in a statement. SMC has 56.21 per cent stake in Maruti Suzuki India (MSI), the country's largest car maker. 

Even the luxury car segment has not remained unscratched from the negative trend in auto sales. The largest luxury carmaker in the country- Mercedes-Benz India has recorded a year-on-year sales decline of 15.89 per cent selling 9915 units between January - September 2019 as opposed to 11,789 units, sold in the same period last year. The German carmaker has said that the last month (i.e. September) has seen satisfactory sales and it is expecting customer sentiments to improve in the last quarter of this calendar year having already crossed the 10,000 annual sales mark in October selling over 200 units during Navratri.

Speaking on the sales performance Martin Schwenk, Managing Director and CEO, Mercedes-Benz India said, "We are glad to maintain our market leadership in the luxury car market despite facing strong macro-economic headwinds from the earlier quarters, and also having a higher base in the segment. We are equally excited to witness great consumer feedback on our products in September. On the back of a strong September performance, we have already crossed the 10,000 units mark in the first week of October, and are confident of maintaining this growth momentum by leveraging the upbeat customer sentiment. Our market performance in September has been backed by the introduction of innovative and customer centric mobility solutions like Wishbox, and also by the varied support measures we have taken for our dealer partners. These strategic steps have helped us in retaining the customers' loyalty, dealer sustainability and also in maintaining our market leadership. As a fundamentally strong brand, Mercedes-Benz continues to remain bullish on the mid to long term prospect of the dynamic Indian market."

Likewise, led by a robust pipeline of products launched over the past one year, the Munich-based luxury carmaker BMW has outperformed peers in the Indian market, increasing its share by more than 500 basis points. BMW India increased its share in the luxury segment from 19% to 24% in the last three to four quarters, and is aspiring to gain a further 1-1.5% share in 2020, led by its portfolio range and freshness, and expanding reach.

Rudratej Singh, MD of BMW India, told ET that several factors – structural, economic, cyclical and regulatory changes – have combined to create an environment that has hit demand. Singh said he expects demand to gradually recover in the next three to four quarters. “I see a slow and steady progress rather than a radical change in the demand environment. We are still to see the churn on account of transition from BS IV to BS VI. It will be a story of two halves in 2020 – in the first, there will be churn, but I expect demand to grow in the second. Overall, 2020 will be better than 2019,” Singh said.

Rahil Ansari, head of Audi India, said it was proving to be a tough year for the luxury car industry and he expects the market to shrink in 2019.

A company that bucked the trend was Volvo Car India, with an 11% growth in the first half. But it predicts the second half to be tough. “The rest of the year looks tough. We would be happy to reach last year’s numbers. This is, of course, a short-term phenomenon and I am confident the luxury segment will be back on a high growth path,” said managing director Charles Frump.

The Changing Consumer Reality: New Trends shaping consumption

The Rise of Subscriptions based Luxury: Why buy it when you can rent it?

Consumer behavior in general has been rapidly shifting towards ‘rent – a – luxury’. ‘Why own it when you can rent it for a lesser cost’? ; ‘Pay per actual usage’ etc. are few trends disrupting the global consumption patterns. Subscription based product offerings are further fueling the experience economy.

Likewise, the global mobility trends are taking a similar direction. Uber and Ola’s of the world have spoilt the populace for choice. App based taxi on demand services are seen zooming across the streets of London, Paris, Milan, and New Delhi too. This is not restricted to just mass or premium cars.

Similar is the case with luxury cars. Most brands are shaping up new strategies of providing the facility of hiring luxury cars. Globally, the rental market is rising. This innovative idea is cashing on the fact that people's desire to drive luxury cars will never die even if they don't have the financial capability to buy one. Besides, in most cities, finding safe parking spaces is another challenge. Special luxury car rental organizations have come up in India too. Corporates, individuals, marriage parties, experience providers are all adopting to this to be happily serviced by such specialist companies.

According to the CEO of Hype, a luxury car rental company, "people mostly like Mercedes-Benz and BMW. And then people also like Jaguar." People usually go for a brand like Mercedes because of its rich heritage. Brands like Lamborghini are chosen by few since it has a specific set of people liking it. Seeking limousines is not rare and uncommon any more.

SUV’s taking over the road

Even as a slowdown continues to dent India's car market, luxury automobile manufacturer Lamborghini India has created a record for the fastest 50 deliveries of SUV 'Urus' within the first 12 months of its launch. The robust sales of the ultra-luxury car gives an inkling that the creamy layer of the Indian masses has remained unaffected by the much-talked about economic slowdown and lack of liquidity among the public.

“We anticipated that URUS is going to drive our future growth in volumes. The Lamborghini Super SUV Urus offers the driving dynamics and emotions true to Lamborghini DNA and has versatility of an SUV that addresses the challenge that we have in India, in terms of infrastructure," said Lamborghini India head Sharad Agarwal.

At ? 3 crore, the Lamborghini Urus SUV is quite actually offers you the bragging rights to own the world's fastest SUV (top-speed 305 kmph), which can accommodate 5 passengers, offering all the comfort and entertainment features. No wonder, the waiting line, currently at a nine month cycle, is getting longer.

Demand for hatchbacks and sedans decreased in June 2019, though SUV and MPV market share has increased.One trend that is continuously growing in India is that of SUVs. Of the total 2,25,732 passenger vehicles sold in June, SUVs and MPVs accounted for 72,917 units or 32.30 percent. Compare that to sales in June 2018 (73,643 UVs and 2,73,748 PVs) and the contribution made by SUVs and MPVs was nearly 27 percent. (Autocar)

Names like the Maruti Suzuki VitaraBrezza and Hyundai Creta, have managed to spur the demand in the UV segment. At a time when the entire auto industry is undergoing a prolonged slowdown and overall PV sales have recorded a double-digit sales decline, the UVs segment has shown a substantial improvement. According to data published by the Society of India Automobile Manufacturers (SIAM), Utility Vehicles have recorded a growth of 5.49 per cent in September 2019 selling 81,625 units as compared to 77,380 units which were sold in the same month last year.

Shift to bridge/premium brands from mass brand

Rising incomes, rapid urbanization, easy excess of information, rising aspirations along with easy availability of global brands, has influenced the consumer like never before. Tired of the standard mass brands ranging from a Suzuki to a Hyundai, the youth seeks a change and a better quality of life. The new found affluence drives him towards premium to bridge brands. Infrastructure challenges and the desire to feel ‘powerful’ on the road, make him seek out SUV’s as a choice.

Enter Hector MG:

The MG Hector was launched in India during the month of July 2019. Within a month of its launch, the SUV received 28,000 bookings and with a monthly production of just 2,500 units, the carmaker decided to halt bookings in the month of August.With the commencement of second shift at the company's plant, bookings were re-opened on 29th September. Within 8-9 days of the same, MG Motors India has received an additional 8,000 bookings for the mid-size SUV. The carmaker said that it sold 1,508 cars in the month of July, 2,000 cars in August followed by 2,608 cars in the month of September.Prices of MG Hector range between 12.5 to 17.5 Lakh rs.

The Tata Harrier:

Tata Harrier, the compact five-seater compact SUV produced by the Indian automaker Tata Motors, was launched in Indian market on 23 January 2019. Positioned between the subcompact Tata Nexon and the mid-size Tata Hexa, had sold more than 10,000 units by July 2019. Priced at around Rs. 13.0 Lakhs, the feature-rich Harrier competes against the likes of MG Hector, Mahindra XUV500, Jeep Compass and Hyundai Creta. An all-black version of the Harrier was also recently launched at Rs 16.76 lakh.

The Kia:

Kia Motors India is the newest carmaker to set foot in the country. Owned by the Hyundai Motor Company, the Korean giant has setup 265 customer touchpoints across 160 cities in the country. Anantapur district in Andhra Pradesh hosts Kia’s manufacturing facility in India that has an annual production capacity of approximately 3,00,000 units. The Seltos is the model that marked the successful start of the brand’s operations in the country.Ranging between Rs. 9.69 lakh to 16.99 lakh, Seltosis the polular model on offer. In the year 2019/2020, Kia plans to launch 6 new models. Launched in August 2019, the Seltossold 6200 units, increasingto 7500 in September.

A host of brands offering similar demand gaps

Cashing in on this demand trail, Maruti Suzuki India Limited has launched the XL6 crossover in India. Prices for the XL6 range between Rs. 9.79 lakh toRs. 11.46 Lakh.

Around 6 upcoming Mahindra cars like Mahindra eKUV100, Mahindra XUV Aero, Mahindra Thar 2020 and Mahindra XUV500 2020 will be launched in India in 2019-2020. Among these 6 upcoming cars, there are 6 SUV.

After a dream run of the Jeep Compass, The Jeep Grand Cherokee and The Jeep Grand Cherokee SRT, The Jeep Wrangler by Fiat Chrysler India was also launched in August 2019.

This clearly shows that the slump in the domestic market is only limited to mass produced cars and not the luxury automobile market.

Luxury Cars & Policy Push: Move to the future

A crucial factor for the lackluster year for luxury automobile has been India’s policy push against Diesel Cars. In a highly price sensitive country like India where car mileage plays a very important role, even in the luxury car industry, diesel cars have lost favors with customers.

The enhanced price of diesel cars, policy push towards EV cars, negligible price difference in the diesel and petrol costs and the 10 year period maximum validity for diesel cars have slowed sales tremendously. Add to the fact that as the Industry moves towards Electric vehicles, automobile makers are investing in R&D towards Electric cars due to which new diesel model launches have stalled.

The Volkswagen group which owns Audi and Skoda is already facing heat worldwide for Diesel gate and has hence stayed away from launching any new diesel models.

In the case of JLR, a Tata group owned luxury automobile brand, has recently announced layoff of more than 4500 employees worldwide due to the slump in car sales. This comes after the 1500 laid off last year. The company claims uncertainty due to Brexit, diesel car sales slump and a sales slowdown in China as the primary reasons for the strategic decision. The company claims it is making investments to adjust future product lines and that it is going to focus on electric cars production.

With the government’s push toward electric mobility and the introduction of Bharat Stage VI fuel standards, carmakers in India are focusing on creating platforms that would support electric, hybrid and other future tech-enabled cars. At least half a dozen zero-emission cars, hydrogen cars and pure electric cars have been scheduled for launch as early as 2019 in India.

(Image source – lamborghini.com)

Audi E-tron, Nissan Leaf, BMW iSeries cars and even Lamborghini’s TerzoMillennio may soon be launched in India. Although, most car companies have stayed quiet about the launch timelines in India. Volvo plans to launch four plug-in hybrids in India. With changes in import regulations, once a car is certified in the home country, it no longer needs homologation in India. A move welcomed by the automobile industry as it would be a cost saving, running into crores, for each model that is introduced in India. Mercedes plans to introduce more than ten electric models in India over the next three to four years. Rival Audi plans to introduce more than a dozen by 2025. The change in the import regulations will allow for a simultaneous launch of the luxury cars with their global launch.

In a bid to reduce costs for electric vehicles, the government has drastically reduced the import duty on parts and components of electric vehicles to 10 to 15 percent. However, the exemption of customs duty on battery packs for electric vehicles has been eliminated and the customs duty on battery packs for mobile phones has been doubled. A move aimed at promoting ‘Make in India’ which would push manufacturers to set up facilities in India. Elsewhere, NitiAayog’s plan to apply a cess on conventional fossil fuel based vehicles to promote subsidies on electric cars. This would further increase the cost of luxury cars in India since most cost upwards of Rs 30 lakhs.

On a more positive note, various international startups have plans to launch luxury electric cars in India such as the London-based enterprise, Laureti, which plans to launch its e-SUV, Dion-X by 2021. And in comparison to Audi’s yet to be launched E-Tron with a sticker price of Rs 1 Crore, Dion-X will cost approximately Rs 40 lakhs and claims a mileage of 540 KMs per charge.

With electric being the way forward, luxury car makers are leading the way to the future. Indian government’s policy push to promote e-mobility is highly exciting. As the world’s second largest automobile market after China, exciting times lie ahead for the fans of electric mobility and Luxury cars. 2019 onwards, we believe, we will see a flurry of car launches to entice the Indian luxury car aficionados.

The above opinion piece has been carried by The Luxury Society on 30.10.2019. the same can also be read at https://www.luxurysociety.com/en/articles/2019/10/indias-luxury-automobile-industry-gloom-doom-or-zoom/