The Indian Luxury car market is on the verge of exploding, led by the increasing affluent class. this has catapulted Germany’s big 3 into an internecine and long drawn war. Is their any winner in sight yet? B&E’s Sanchit Verma Gives an incisive sectoral update on the current relative sales figures, positioning issues, production plans...
To understand a nation’s economic growth, one could study many indicators, from GDP rates to consumption indices to even employment levels. But the most fascinating and alluring of all such factors remains the automobile industry growth, which over time has become a seat-of-the-pants clinker of a method to forecast expected economic momentum. In other words, positive automobile industry sales are in general signals for positive GDP growth; and vice versa too. For example, when August 2010 US automobile sales figures were released, analysts realised that these were the worst August auto sales figures in 27 years –immediately, market expectations of and from the US economy fell in an instant. Yes, there are many economists who deride the drawing of such a clunky correlation between the auto-industry and economic growth – but then, the fact of the matter is, such a correlation not only exists but is supremely inevitable.
And for sprightly economies like India’s where in reality there exists no true middle class, and where factors like UN’s Gini index (shows income inequality, with 0 denoting total equality and 100 denoting utter inequality) have become more eccentric by the year – apparently, at 36.8 on Gini, the UN believes India is pleasurably floating on brilliant equality of income across classes – an extension of the auto sales correlation to the luxury car segment throws up brilliant market understanding, again seat-of-the-pants, of how forcefully would India’s top segment of consumers drive our economy.
While this was one of the primary reasons why we took up this issue’s cover storyline, this wasn’t the only one. The lives and styles of the rich and famous fascinate one and all – including yours truly. And there’s always this infatuated fascination with getting to know how richer are the rich growing by the day (well, not many might wish to entertain a commentary on how much poorer are India’s poor) – something similar to how new records in high-end b-school placement packages are followed by everybody. What better a method to study the same, and look intellectual at the same time, than to minutely analyse the luxury car segment, interrogate top CEOs in this sector, and get to drive a few of their dapper suave monster machines – all for the sake of the nation! And given the suspiciously elongated justification we’ve attempted to pull for this article, we jump right into the issue.
The target market: There’s no gainsaying the fact that the current rabid war in India’s luxury car segment is clearly because the target market has undergone a similar rabid growth. Some statistics would put this inference into context. According to the World Wealth Report by Merrill Lynch and Capgemini, India’s HNWI (High Net Worth Income) population came down by 31.6% yoy to 84,000 in 2008 after growing by 22.7% yoy in 2007. The Indian industry, which had suffered a slowdown in 2008, came back strongly in 2009, apparently on the backs of the HNWI population, which grew by 50.9% yoy for the year. The report further suggests that India’s HNWI population will reach three times its 2008 level by 2018. Cut to the luxury car segment in India, and in a similar vein to the HNWI movement, a recent study by AT Kearney projects that the Indian luxury market is set to triple from current levels to $14.72 billion by 2015. And going by SIAM figures, even though the luxury car segment accounts for just around 1% of the Indian automotive market, this minute segment in itself grew by 33.58% yoy in the period of April-September 2010.
Clearly, there’s not much left to imagination about why western car manufacturers, especially in the luxury segment now, are focusing in a mammoth way on developing nations like China and India. For example, German luxury car maker Mercedes Benz assembled its first car in India in 1996, and had had a virtually free run since in the affluent class for years – till the time competitors entered and got on with the battle in double time. Today, the field is still dominated by the Germans, with Mercedes Benz, BWM and Audi (Volkswagen’s premium arm) engaged in an epic battle to capture. Besides them, brands like Porsche, Bentley, Jaguar, Lamborghini, Land Rover, Maybach, Rolls Royce, Toyota, Volvo, Nissan and Mitsubishi are present in one or more segments, since they still don’t feel the Indian market is ready for their products. That’s a surprising take, given that the increasing desire to own luxury cars simply to ‘up’ one’s status has led to India’s luxury car market heating up like how. From a mere 600 units back in 1999 (primarily Mercedes Benz), the luxury car segment is poised to give annual sales of over 15000 units per year.
Market share movements: Even to the untrained eye, the critical years that have changed India’s luxury car marketing landscape have been the last two to three years, with 2009 being the watershed year. In 2006, BMW had a market share of simply 9% in India. Cut to 2009. While Mercedes’ sales reached 3,202 units, BMW managed to clock a fantastic 3,587 units. As a result, BMW overtook Mercedes and gained over 40% market share. BMW President Dr. Andreas Schaaf told B&E, “2007-2009 were demanding years for BMW in India, and at the same time, the most successful entry for BMW in any country recently.” Successful because BMW was able to increase its sales by ten-folds from 2006 to 2009. Audi wasn’t far behind, with a record 2009 as well in India. Audi sold 1,658 cars in 2009, translating into a growth of 58% over 2008.
Understandably, this was news that shook the whole industry. In the first five months of this financial year, however, Mercedes again recaptured its leadership position with a sale of 2,212 cars, with BMW at 1,987 units and Audi at 1,876 units in hot pursuit. Dr. Wilfried Aulbur, CEO, Mercedes-Benz India, told B&E, “We will end up with more than 5000 units this year, which means we have had a CAGR over these 5 years of about 30%.” In January 2010, Mercedes broke its own past records by selling 411 units, with BMW and Audi standing at 341 319 respectively. Mercedes-Benz India announced a sale of 321 units in April 2010 taking the cumulative sales for January-April 2010 to 1603 units marking a growth of 80% yoy. E-Class registered 139% growth while the SUV portfolio registered 67% growth. There was a significant month-on-month growth in April 2010 for both C-Class (71%) and E-Class (84%). Such huge growth figures in the face of competition are critically surprising and momentous. Mercedes’ July 2010 month sales of 521 vehicles in India was apparently the best ever month sales since Mercedes entered India 15 years ago. Their August 2010 sales at 573 units bettered that too! And if you were to see the 662 units they sold in September 2010, you’d start understanding why we have been continuously using the term ‘rabid’ to describe this segment’s growth.
To understand a nation’s economic growth, one could study many indicators, from GDP rates to consumption indices to even employment levels. But the most fascinating and alluring of all such factors remains the automobile industry growth, which over time has become a seat-of-the-pants clinker of a method to forecast expected economic momentum. In other words, positive automobile industry sales are in general signals for positive GDP growth; and vice versa too. For example, when August 2010 US automobile sales figures were released, analysts realised that these were the worst August auto sales figures in 27 years –immediately, market expectations of and from the US economy fell in an instant. Yes, there are many economists who deride the drawing of such a clunky correlation between the auto-industry and economic growth – but then, the fact of the matter is, such a correlation not only exists but is supremely inevitable.
And for sprightly economies like India’s where in reality there exists no true middle class, and where factors like UN’s Gini index (shows income inequality, with 0 denoting total equality and 100 denoting utter inequality) have become more eccentric by the year – apparently, at 36.8 on Gini, the UN believes India is pleasurably floating on brilliant equality of income across classes – an extension of the auto sales correlation to the luxury car segment throws up brilliant market understanding, again seat-of-the-pants, of how forcefully would India’s top segment of consumers drive our economy.
While this was one of the primary reasons why we took up this issue’s cover storyline, this wasn’t the only one. The lives and styles of the rich and famous fascinate one and all – including yours truly. And there’s always this infatuated fascination with getting to know how richer are the rich growing by the day (well, not many might wish to entertain a commentary on how much poorer are India’s poor) – something similar to how new records in high-end b-school placement packages are followed by everybody. What better a method to study the same, and look intellectual at the same time, than to minutely analyse the luxury car segment, interrogate top CEOs in this sector, and get to drive a few of their dapper suave monster machines – all for the sake of the nation! And given the suspiciously elongated justification we’ve attempted to pull for this article, we jump right into the issue.
The target market: There’s no gainsaying the fact that the current rabid war in India’s luxury car segment is clearly because the target market has undergone a similar rabid growth. Some statistics would put this inference into context. According to the World Wealth Report by Merrill Lynch and Capgemini, India’s HNWI (High Net Worth Income) population came down by 31.6% yoy to 84,000 in 2008 after growing by 22.7% yoy in 2007. The Indian industry, which had suffered a slowdown in 2008, came back strongly in 2009, apparently on the backs of the HNWI population, which grew by 50.9% yoy for the year. The report further suggests that India’s HNWI population will reach three times its 2008 level by 2018. Cut to the luxury car segment in India, and in a similar vein to the HNWI movement, a recent study by AT Kearney projects that the Indian luxury market is set to triple from current levels to $14.72 billion by 2015. And going by SIAM figures, even though the luxury car segment accounts for just around 1% of the Indian automotive market, this minute segment in itself grew by 33.58% yoy in the period of April-September 2010.
Clearly, there’s not much left to imagination about why western car manufacturers, especially in the luxury segment now, are focusing in a mammoth way on developing nations like China and India. For example, German luxury car maker Mercedes Benz assembled its first car in India in 1996, and had had a virtually free run since in the affluent class for years – till the time competitors entered and got on with the battle in double time. Today, the field is still dominated by the Germans, with Mercedes Benz, BWM and Audi (Volkswagen’s premium arm) engaged in an epic battle to capture. Besides them, brands like Porsche, Bentley, Jaguar, Lamborghini, Land Rover, Maybach, Rolls Royce, Toyota, Volvo, Nissan and Mitsubishi are present in one or more segments, since they still don’t feel the Indian market is ready for their products. That’s a surprising take, given that the increasing desire to own luxury cars simply to ‘up’ one’s status has led to India’s luxury car market heating up like how. From a mere 600 units back in 1999 (primarily Mercedes Benz), the luxury car segment is poised to give annual sales of over 15000 units per year.
Market share movements: Even to the untrained eye, the critical years that have changed India’s luxury car marketing landscape have been the last two to three years, with 2009 being the watershed year. In 2006, BMW had a market share of simply 9% in India. Cut to 2009. While Mercedes’ sales reached 3,202 units, BMW managed to clock a fantastic 3,587 units. As a result, BMW overtook Mercedes and gained over 40% market share. BMW President Dr. Andreas Schaaf told B&E, “2007-2009 were demanding years for BMW in India, and at the same time, the most successful entry for BMW in any country recently.” Successful because BMW was able to increase its sales by ten-folds from 2006 to 2009. Audi wasn’t far behind, with a record 2009 as well in India. Audi sold 1,658 cars in 2009, translating into a growth of 58% over 2008.
Understandably, this was news that shook the whole industry. In the first five months of this financial year, however, Mercedes again recaptured its leadership position with a sale of 2,212 cars, with BMW at 1,987 units and Audi at 1,876 units in hot pursuit. Dr. Wilfried Aulbur, CEO, Mercedes-Benz India, told B&E, “We will end up with more than 5000 units this year, which means we have had a CAGR over these 5 years of about 30%.” In January 2010, Mercedes broke its own past records by selling 411 units, with BMW and Audi standing at 341 319 respectively. Mercedes-Benz India announced a sale of 321 units in April 2010 taking the cumulative sales for January-April 2010 to 1603 units marking a growth of 80% yoy. E-Class registered 139% growth while the SUV portfolio registered 67% growth. There was a significant month-on-month growth in April 2010 for both C-Class (71%) and E-Class (84%). Such huge growth figures in the face of competition are critically surprising and momentous. Mercedes’ July 2010 month sales of 521 vehicles in India was apparently the best ever month sales since Mercedes entered India 15 years ago. Their August 2010 sales at 573 units bettered that too! And if you were to see the 662 units they sold in September 2010, you’d start understanding why we have been continuously using the term ‘rabid’ to describe this segment’s growth.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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