India’s tryst with luxury car brands

A booming domestic market and a highly skilled engineering work pool combined with the labor arbitrage is fast turning India to be a coveted destination for luxury car manufacturers.

While Mercedes Benz has been around for over a decade, BMW, Audi, Porsche, Bentley, Lamborghini, Rolls Royce and the Land Rover entered India only in the last few years through the imported /distributor route while, Lexus, Ferrari and Aston Martin, plan to enter India soon.

Mercedes Benz entered India over a decade ago and began manufacturing at a plant leased from Indian auto major Tata, in Pune (India).

Recently the company announced that it would be investing Rs 250 crore for a second plant that will have a capacity to produce 5,000 vehicles annually.
The plant will be the German car maker’s first fully owned production facility in the country with the first car expected to roll out in early 2009.

Mercedes Benz as a company has enjoyed steady and profitable growth in India and are looking forward to continue their success story in India with their own premises.

Although small compact cars clog Indian roads, high-end luxury cars are increasing their toe-hold on Indian roads. Mercedes-Benz India sales of S-Class , E-Class and C-class sedans shot up to 2373 units in 2007 including CBUs (M Class, SLK, CL, CLS, CLK) it is 2491, a 16% growth over the previous year.
Just 13 months into production in India, Mercedes Benz bavarian rival BMW has set an assembly line for its 3 and 5 series. Its sports utility vehicles (SUV) X3 and X5 are imported as CBUs (completely built units) route and sold at around Rs 41 lakh to Rs 79 lakh due to high import duty.

With the new assembly line, the 3 and 5 series has seen a price drop by almost 40%.

Even as it set a target of 1000 units in 2007, BMW sold 1387 units. This year, BMW is targeting a sale of 2000 units and it has already sold 800 units.

BMW’s expansion of dealerships across cities has fastened their pace of growth in the country. Currently BMW has 9 dealerships.
So, what is it that warrants this attention from the world’s elite car manufacturers ?

Rising middle class incomes and increased competition are expected to push car sales in India past the 2 million units mark by 2010. Statistics show that in 2001-2002 there were 20,000 families in India with annual income of more than $250,000.

By 2005, that number is at 53,000 and by 2010, India will have an astonishing 140,000 millionaires.

The World’s Top Auto Markets by 2030, projects that over the next 25 years, emerging markets will account for a stunning 69% of industry sales and 87% of vehicle registrations.

China and India will be the major players as their combined shares of motor vehicle registrations will from 5.3 to 37% by 2030. Although China is likely to become the world’s largest motor vehicle market by 2017, India, due to its late start, is projected to catch up quickly, surpassing Japan within 10 years to third place in sales.

By 2030, India’s auto market is expected to be similar to the United States’ in size.
However, the premium car makers recognize that in India they are in for a long haul. While Mercedes Benz India hopes to sell 4,000 units a year by 2010, Audi has taken a similar approach.

Launched in mid-2004, the German carmaker targeted only 100-150 units of its A8 and A6 in the first year. Recently, Audi added an SUV — the Q7 — to its India portfolio, taking the total number of models in the country to four.

Industry estimates that the luxury car market will cross 5000 units this year and analysts estimate a continued growth rate of 12-15 % per annum.

Porsche, retailed models like Cayenne, Boxter 911 in good numbers. Selling its cars through dealerships in India, Porsche has now incorporated an importer office. It has centers in Delhi and Mumbai and plans to expand to Hyderabad, Bangalore and Chennai too.

There are plans to launch the Panamera model next year . Porsche has sold about 500 cars ever since it began operations in India in 2004.
Not to be left behind, The Volvo Car Corporation entered the Indian market with its sedan S80, and SUV XC90, in both petrol and diesel variants. These cars are are sold through dealerships in Delhi, Mumbai and Chandigarh .

Volvo is already present in the commercial vehicles segment in the country. Improving economic condition of the people is going hand in hand with an increase in purchase of luxury goods.

Although Bentley’s introductory product was the powerful, two-door GT it followed this up with the Flying Spur – a four-door luxury limo priced at Rs. 70 lakh, targeted at volumes in India.
An erstwhile favorite car of the erstwhile maharajahs, the Rolls Royce, made a comeback to India after 5 decades, in April 2005. In one year, eight Rolls’ were sold.

Despite over 100 per cent import duty, sales of imported BMWs were soaring. So the Rolls, which belong to the same group, also followed suit to India.

While premium brands make the rush for India, Indian companies are not far behind in trying to acquire some premium names–Tata Motors recent acquisition of Ford’s Land Rover, and Jaguar brands.

It seems that one way or another, India’s tryst with luxury car brands is only just beginning.