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Cover Story: Luxury car market in India on an overdrive

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Luxury-car

About until five years ago, a long stylish sedan with a logo that has three striking lines in a circle (Yes you guessed it right it is the Mercedes) signified power, royalty and class. But this privilege was restricted to only a few of those belonging to a royal family or business moguls. But the tides have turned. Today, a local farmer from Kolhapur is purchasing a Mercedes, a beedi factory owner from Raipur is buying a BMW, young IT professional from Pune owns an Audi, young industrialist from Delhi is driving a Ferrari – one can see the variance in the customer profile and also their inclination towards luxury cars. Be it the real-estate boom or the growing number of entrepreneurs, purchase of luxury cars remains the symbol of power, recognition, prestige and status and that is driving the numbers in the luxury car space in India.

Fueling demand
Anand Ramanathan, Associate Director, KPMG Advisory Services feels that the emergence of rural India and the increase in nouveau-riche consumers  has increased the market for luxury cars in the country. “Who had expected Mercedes-Benz India to sell 113 Mercs at Aurangabad and 180 Mercs at Kolhapur in one shot?” he asks.

Sample this: The Indian luxury car market is estimated to be around 23,000 units in about 1 per cent of the passenger vehicle market in India. But  is estimated to grow at a CAGR of 25 per cent for the next eight years to touch 1,50,000 units by 2020. Contrast this, with a scenario where overall passenger vehicles are expected to grow by 10-12 percent.

Andreas Schaff, President, BMW India

Andreas Schaff, President, BMW India

The annual World Wealth Report (2011) of Merrill Lynch Wealth Management and Capgemini, suggests, India has the world’s 12th largest High Networth Individuals (HNI) population. Not just that, among the top 12 countries globally, India’s growth in HNI population was highest at 20.8 per cent. Experts feel that this rapidly growing nouveau-riche segment is expected to keep fuelling the demand in the luxury car segment in the years to come.

Young drivers
Also, a lot of young consumers are buying luxury cars in markets like India. Ashish Chordia, Chairman, Shreyans Group (manages Ferrari and Maserati brands in India), “The age of the demographic purchasing luxury cars in emerging markets can be seen to be relatively lower than in mature markets.”

With the consumer profile reshaping and expanding, no wonder the luxury car market in the country is getting redefined. And the luxury car segment is getting further sub-segmented in: entry-level, mid-level, super luxury, sports cars and SUVs. On one hand we have the entry level luxury brands like BMW, Audi, Mercedes and Volvo; on the other hand there are the mid-level luxury brands like Jaguar and Land Rover (starting from about Rs 50 lakh). Not just that, the Indian market has seen some of the biggest names in the sports car and super luxury segment like Ferrari, Aston Martin, Maserati, Bugatti and Gumpert Apollo entering the Indian market in the last 12 months. Apart from these, brands like Bentley, Lamborghini, Rolls Royce  have either expanded their dealership network or are considering the same.

New money driving volumes
Another key trend in this luxury space is the sudden upsurge in the entry level cars starting as low as Rs 22 lakh. About 18 months back BMW launched its X1 SUV model lowering the entry level of luxury cars to about Rs 22 lakh (ex-showroom). Andreas Schaff, President, BMW India says, “We were the first one to spot the opportunity in this price segment. We realised that India is growing fast and with that there is a lot of new money coming in. With the growth of sectors like education, realty sector and increasing wealth of IT professionalists, there have been more consumers aspiring to own luxury cars. So we deliberately decided to get into this space.”  And it proved to be a right decision for BMW. The model has been a big hit in the country and has driven the top lines for the brand. Audi (from the Volkswagen group) too, beginning this year, launched Q3 to compete in this segment. Even Volvo has launched its S60 model with a new engine priced around Rs 24 lakh (ex-showroom). But as of now, Mercedes doesn’t have any model in this price range but is keen to enter this segment soon.

  Peter Honegg, MD & CEO, Mercedes Benz India

Peter Honegg, MD & CEO, Mercedes Benz India

As  Peter Honegg, Managing Director & CEO, Mercedes-Benz India, states, “We realise the game has changed since BMW launched its X1 series. The below Rs 25 lakh segment has become big and there is a huge opportunity. We will soon bring cars in this segment  and we will again change the game in this space.” Honegg confirms that Mercedes is planning to launch its A and B class cars in India in some time, which will compete in this entry level luxury car space.

Experts feel that the important thing is that this segment will play a key role in driving growth of even the higher segment. Sunil R Shetty, Planning Services Director, Draftfcb + Ulka agrees, “The entry segment tends to upgrade faster and will create a significant pipeline for high end offerings a couple of years down the line.”

In the mid-level luxury segment, Jaguar & Land Rover from the Tata Group, (which entered the Indian market in 2008 after Tata Motors bought the Jaguar Land Rover business from Ford Motors) has also become very aggressive this year. The company rolled out its global campaign ‘How Alive are You’ in India early this year. The campaign capitalises on the existing emotional pull of Jaguar cars and challenges consumers to answer: ‘How alive are you?’ According to Jaguar, it has grown by over 100 per cent in terms of sales in the last one year in India and currently has 6.5 per cent share of the luxury car market in the country.

The long journey to India
Meanwhile, Adrian Hallmark, Global Brand Director, Jaguar Cars, states, “The Indian luxury car market is relatively small at present but has a huge potential. We are going to be here (in Indian market) and we will fight for our share in this market because we see India as our second domestic market.”  However, experts feel that Jaguar may face challenges in India on the pricing end. Hormazd Sorabjee. Editor, Autocar India feels, “The journey for Jaguar will be difficult because it is not assembling most of its cars in India and is bringing Complete Build-up Units (CBUs). This is making the cars costlier for the consumers. Jaguar’s starting model costs about Rs 48 lakh in India (ex-showroom price). Thus, experts feel that to ride on the growth of the entry luxury segment, Jaguar will have to get into the entry luxury car segment too. That’s where the volumes will come from. And thus, a lot of effort will be required in investing behind the entry level offerings both in terms of branding and new products. Jaguar’s Hallmark acknowledges this, “The first step for us is to get our products established in terms of the technical and design attributes and also establish the ‘Jaguarness’. Because brand Jaguar is kind of known in India but its brand attributes are not known in depth in India.”

Andy Gawthrope, Global Sales Director, Aston Martin

Andy Gawthrope, Global Sales Director, Aston Martin

SUV: the love of the Young
For the last two years, the SUV segment in the luxury car market has been growing faster than the overall luxury car market. According to Peter Honegg, Managing Director & CEO, Mercedes-Benz India, the luxury SUV segment is growing at about 50 per cent while the luxury sedans are growing at 25-30 per cent.

So why is the SUV segment growing faster than the sedans in the luxury car market in India? BMW’s Schaff feels it is both because of the features driven factors and the emotional factors. He adds, “At the emotional level, SUVs  represent a more modern lifestyle and thinking and that’s why the segment is getting more popular.”

Experts agree with Schaff and feel that it is because a lot of young rich people identify more with a SUV and consider sedans as an option for older people, that is why this sub segment in the luxury car market is growing so fast. Auto expert, Murad Ali Baig, says, “Premium luxury segment has got a lot of rich people who want to have a high visibility amongst their peer group. And while a sedan like a Mercedes E class or C class is prestigious, they don’t have the masculine image, which a lot or young rich people identify with. So for that consumer segment, a luxury SUV is more macho and is something that represents its own lifestyle.”

BMW and Audi spotted this opportunity early in the Indian market and have a range of options in this space with their X (BMW) and Q (Audi) series. Mercedes, meanwhile, has been lagging a bit behind in this sub segment in terms of offerings. As Autocar’s Sorabjee points out, “Mercedes doesn’t have much option in this space. If it wants to increase its share in the Indian luxury space, it needs to increase its offering in the SUV space.”

Mercedes has its M Class and G Class in the SUV space. Now in its third generation, the M-Class is the most popular SUV from the Mercedes-Benz stable with over 1,500 units sold in India, since its launch in 2008. Mercedes’ Honegg states, “The SUV segment where we saw no offerings till five years ago, now contributes 10 per cent to our sales. In future, we are going to offer M class for more competitive buys.”

It has also recently launched the third generation M-Class in the luxury SUV space in India at an aggressive price of Rs 56.9 lakh (ex-showroom Delhi). This is 15 per cent lower than the earlier model, which was priced at Rs 66 lakh. The company expects this share to go further up this year, after it started assembling the cars in India  itself, which translates in lower price of the model for consumers.

 

Ashish Chordia, Chairman, Shreyans Group  (Ferrari & Maserati)

Ashish Chordia, Chairman, Shreyans Group (Ferrari & Maserati)

In exclusive league
Meanwhile, experts feel that with increasing number of BMW, Audi and Mercedes on the Indian roads, somewhere the exclusivity factor associated with these brands that was attached to them five-10 years ago, has gone down and hence, many consumers who have the money – between Rs 1 crore and Rs 5 crore – to spend and want exclusivity, are looking at brands like Aston Martin, Ferrari and Lamborghini.  And with India being home to over four per cent of the world’s $ billionaires (according to the Forbes billionaire list) there are plenty who have the pocket to afford such cars. Dr Falguni Vasavada Oza, Associate Professor, Marketing, MICA says, “India is a country where everyone rides high on status and consumers are interested in driving home the fact that they have arrived in life! And luxury cars like Aston Martin add class and sophistication to the monetary status.”

Aston Martin launched its first showroom in India in Mumbai in 2011 and opened its second showroom in New Delhi, early this month.

Andy Gawthrope, Global Sales Director, Aston Martin shares, “When I met customers here even before we had opened our outlets in Mumbai and Delhi, there was a huge interest in Aston Martin. Everybody knows Aston Martin around the world through James Bond movies, and India is not oblivious. Surprisingly, there is immense brand awareness not just about our cars but also the heritage of our brand. So we think, it is the right time we have entered in this market. The rising aspirations and wealth in the Indian market and also the development of facilities like the Buddha circuit and F1 have created excitement for sports cars in the country.”

Aston Martin, which was until recently focused on US,  Europe and UK markets only, is now aiming for 25 per cent of its sales to come from the emerging markets.

Talking about the challenge for these brands, Draft FCB’s Shetty says, “The super luxury cars are pure indulgence and will need to build on their unique brand heritage and ensure that they deliver it on par with global standards”

  Hormazd Sorabjee, Editor, Autocar India

Hormazd Sorabjee, Editor, Autocar India

Matured enough?
However experts believe that the Indian luxury market is not yet fully mature and the super luxury space of Bentley, Rolls Royce and Aston Martin will remain small for some time. Autocar’s Sorabjee says, “It is a very niche segment in India right now, and will take at least another three years to pick up.”  Well, Sorabjee seems to be right in his estimations as brands like Aston Martin are selling as low as 15 cars in a year. The volumes are a challenge, yet is achievable. But interestingly, Ferrari, which was launched in 2011 received 20 bookings between June to December 2011 itself.

However, it is clear that for now, the real action will be in the Rs 30 lakh to Rs 1 crore segment, which BMW, Audi, Mercedes and Jaguar compete in. However even these manufacturers are yet to offer a full suite of products in the market. Also, some other large global brands in this segment, like Lexus are also expected to enter the Indian market over the next year or so.

Launch of more India specific variants which are able to deal with the challenges of driving in the country, may drive growth in this segment.

Adrian Hallmark, Global Brand Director, Jaguar Cars

Adrian Hallmark, Global Brand Director, Jaguar Cars

BTL: Marketing locust
When it’s come to marketing budgets, the luxury drivers rely a lot on BTL activities. For some brands in this space the marketing spend ratio between ATL and BTL about is 50:50. Pitch spoke to some media planners, media agencies and research agencies to find out some estimates about the marketing budget of the luxury car brands. According to our estimates the media spends of all the luxury cars in India is estimated to be approximately Rs 200 crore while the BTL spends are estimated to be Rs 125-150 crore. German brand BMW is estimated to be the biggest spender with annual marketing spends of Rs 50 crore, followed by Mercedes with Rs 45 crore and Audi at around Rs 35 crore. While the relatively new player Jaguar is estimated to be having an annual spend of Rs 15-20 crore.

Brands like Rolls Royce, Ferrari, Aston Martin, Lamborghini and the ilk are estimated to be spending about Rs 5 lakh for per car sold.

So will the new brands coming in is there a scope for the ad pie of luxury automobiles going up? Dinesh Vyas, General Manager, MEC answers that as he says, “We don’t see a very huge increase in the overall media spends OF this segment, we definitely see more smart allocation of monies from the same pie. We feel that clients are more receptive to more response oriented mediums like Digital.” Also experts feel that though Print will continue to dominate the overall spends by this segment, it’s share will slightly go down to accommodate other mediums like TV, Digital and OOH.

As far as marketing activities are concerned, these brands have focused a lot on driver training programmes and driving experience, a lot of this revolving around the Buddha circuit. Aston Martin’s Gawthrope says, “As a brand, our strength is GT racing and we participate in it all over the world. The good news is the GT series is expected to come to India too now that the circuit is ready. We will be actively involved in that once it arrives here.”

Yadur Kapoor, Executive Director, Select Cars (the group that manages  Rolls-Royce Motor Cars and Aston Martin operations in India) says, “We focus on niche marketing and so the locusts of our marketing activities is events and we don’t believe in mass marketing. It’s all about experiencing the brand and the car.”

Falguni Vasavada Oza, Professor, Marketing, MICA

Falguni Vasavada Oza, Professor, Marketing, MICA

The road beyond metros
The metro cities still account for a key chunk of business for the luxury car brands and are likely to continue to be the volume drivers. Having said that, the next tier cities are the markets of tomorrow and brands are making sure not to ignore these markets and preparing their infrastructure to address this opportunity. In fact, brands that are in the volume game (BMW, Mercedes, Audi and Jaguar) are already getting deeper in this context. Mercedes Benz has the largest footprint with presence across 37 cities, while BMW and Audi have presence across 20 and 18 cities, respectively. Jaguar and Land Rover has 15 dealerships across 13 cities. Interestingly, cities like Raipur, Calicut, Dhanbad, Indore, Surat, Jalandhar too are the upcoming markets.

BMW’s Schaff says, “We were the first one to open our showroom in a city like Raipur four years ago, and today other brands have opened their showrooms in the city and the entire luxury car market has been developed there.” Schaff further shares that this dealership that sold about 30 cars in its opening year is able to sell about 100 cars a year today.

Dinesh Vyas, General Manager, MEC

Dinesh Vyas, General Manager, MEC

However, expanding in these towns may not be an easy job for these brands and there can be challenges at multiple levels. For instance, the customer in these towns may not speak fluent English, but has the buying capacity and rapidly wants to upgrade his lifestyle. How do these brands adapt their marketing strategies to the consumer needs in these town will decide their growth further in these markets.

So while the outlook for the Indian luxury car market is very buoyant, at the same time there are multiple challenges like increasing high tax and duties on the CBU units which increases the cost of these cars significantly. And thus local assembling of these cars becomes very vital in the success of these brands in future.

Another key challenge, according to experts, will be localisation of cars as per Indian needs. For instance, a very small percentage of the luxury car segment tends to be self driven unlike international markets where entry premium brands like the Mercedes C-Class, Audi A4 and BMW 3 series are self driven, often these cars are not optimised for rear seat comfort. Marketers need to be conscious of this when bringing in new models especially at the entry level.

About the author / 

Pallavi Srivastava

Principal Correspondent, Pitch

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