Demand for India's Luxury Cars Slow To A Crawl

BMW

Photo: Courtesy of BCCL

The slowdown in the Indian car market is being felt at the fast tracking top end. After overall car sales dipped 16 per cent in July over a year ago, the steepest slide in the past 30 months, demand for luxury cars, which has been growing at 50-55 per cent annually, has joined the crawl.Luxury car sales constituted around 1.5 per cent of sales of all passenger cars in 2010, which stood at Rs.18.15 lakh (~ $40,100).

Mercedes Benz has posted its first dip in sales in three years, while BMW and Audi India are witnessing a decline in sales of their top models as customers downgrade to entry-level luxury cars like the BMW X1 and Audi A4 sedan. For instance, BMW’s tally of 840 cars sold in July mostly comprised X1, its sub-compact sports utility vehicle priced at Rs. 22 lakh (~ $48,624) upwards. Audi’s A4 sedan, in the Rs. 27.18 lakh (~ $60,072) bracket, is also finding more takers than its higher end cars do.

“Growth in the luxury segment is not coming from the top-end price points of above Rs. 30 lakh (~ $66,305),” says a senior executive of Audi India, preferring not to go on record. Sales for Mercedes dropped 17 per cent in July to 478 cars, those of BMW and Audi slowed down to 57 per cent and 69 per cent, respectively. Sales growth of these companies stood at 173 per cent and 80 per cent, respectively, for the first three months of the fiscal over the previous year’s corresponding period.

Rise and Fall

According to the Society of Indian Automobile Manufacturers (SIAM), the luxury car market grew at over 50 per cent for the first four months of the ongoing fiscal year. However, a tepid response to expensive flagship machines like Audi A8, Merc S Class and BMW 7Series and exotic models like the BMW 6 Series convertible, Audi R8 and Merc’s E-Cabrio and SL Roadster – all in the Rs. 1 crore (~$221,000) and above price bracket – have tamed growth.

Mercedes Benz India director (marketing & sales) Debashis Mitra says, “We are out of the comfort zone. The 50-55 per cent growth in the luxury segment is not sustainable in the light of changing economic indices. An overall growth of 25-30 per cent in sales will be a big achievement this fiscal year as retail demand has come down,” according to an Economic Times report.

To maintain sales traction, luxury players have already intensified marketing strategies and started price subventions in entry-level products like the BMW 3Series, Mercedes-Benz Class and the Audi A4. These form the bulk of sales of luxury cars. Discounts range up to Rs. 4-5 lakh (~ $8830 – $11038) on these cars.

In the automotive market, smaller car sales are directly hit by interest rate hikes and higher fuel costs. But luxury cars bought mostly by high net worth individuals are relatively insulated. Yet, sales of these vehicles do get impacted by the overall subdued sentiment in C-suites and on Dalal Street.

“We expect the luxury segment, though smaller in relative volumes, to grow as the customer segments for these vehicles have much larger disposable incomes and are not as impacted directly by the current economic environment,” says Rakesh Batra, national leader Automotive Practice, Ernst & Young.

This post originally appeared on Luxpresso.

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