India's rich list big on Mercedes

Enthusiasm for luxury S-Class comes as a surprise

The popularity of the Mercedes S-Class contrasts with the general slump in passenger car sales.
The popularity of the Mercedes S-Class contrasts with the general slump in passenger car sales.

German giant Mercedes admits it was "a little surprised" when Indian customers snapped up 125 of its new top-of-the-line S-Class luxury cars costing US$250,000 ($300,000) apiece in just 16 days.

India's car industry has skidded on to an icy patch and is set for a second straight year of decline, but one segment still accelerating is luxury cars.

Analysts at India's premier motor fair last week said that for the "really rich", economic downturns have a negligible impact on their luxury spending.

"Luxury car sales are still growing at 15 per cent plus year on year and for the next three years segment growth is expected to continue at 15 per cent upwards," said a report by the Confederation of Indian Industry.

Sales have gone into overdrive for parts of the luxury car segment. Mercedes-Benz, for instance, saw sales rocket 32 per cent year on year in India, despite punitive import tariffs.

Still, "while we believe strongly in our product, we were a little surprised when we sold 125 S-Class cars in 16 days - and this was to customers who bought them sight unseen", Mercedes-Benz India chief executive Eberhard Kern said.

The cars bought were the Indian launch edition of Mercedes' latest luxury S-Class sedan.

In sharp contrast, passenger car sales are set to slump close to 10 per cent in this financial year after years of growing at 30 per cent, said the Society of Indian Automobile Manufacturers.

The market has been hit by high borrowing costs and receding consumer confidence amid economic growth of just 4.5 per cent - half the rate seen during India's boom times.

But while India staggers from its worst downturn in a decade, previous years of rapid growth have created a new moneyed class who are buying prestige marques and keeping the segment above water.

Although World Bank figures show 33 per cent of the planet's poorest call India home, the country also has 65 dollar billionaires and hundreds of thousands of dollar millionaires.

A decade ago, the lone luxury car commonly spotted on India's famously congested, potholed roads was Mercedes, the first premium carmaker to open shop in 1995. But now Audis, Jaguars, Bentleys, Aston Martins, Porsches and other top badges regularly weave through traffic.

The big spenders are top executives, former farmers who sold property for vast sums to developers, and a younger, wealthy generation with different values from their frugal parents who shied away from "conspicuous consumption", analysts say.

"There has been an attitudinal change to spending money - making this a more hospitable place for luxury automakers," says Anil Sharma, senior research analyst at IHS Automotive consultancy.

India's luxury car market is still tiny.

The total sold by the big luxury players in India - Mercedes, Audi, BMW and Jaguar Land Rover - is 30,100. But that number is forecast to climb by 168 per cent by 2018.

The market "is still in its nascent stages," but will be "very important for the future", Mercedes' Kern said.

"Headroom for the market to grow is huge."

In mature markets, luxury cars account for 10 to 15 per cent of sales, while in India "just two out of every 100 cars sold" is a premium vehicle, Audi overseas sales vice-president Terence Johnson says.

"We have 10 top priority markets which are strategic long-term and India is one of them."

Smaller cities and rural areas are also developing strongly as markets.

Delhi and Mumbai account for 45 per cent of Mercedes' sales while the rest come from smaller centres, says Kern, with more women opting for luxury cars, especially sporty, smaller variants.

Analysts say bringing in entry-level luxury cars is a smart move, noting people are usually hooked for life once they buy one.

Sharma says that "when a customer graduates to luxury cars, they don't go back to mass-market nameplates".


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