Luxury vehicle sales in the country are set to more than double in the next five years. This is despite the recent ban on fresh registrations for vehicles over 2,000-cc engine capacity in the national capital, which is expected to hit luxury car sales at least in the short term.
The latest sales forecast from IHS Automotive reveals that in 2015, luxury vehicle sales in the Indian market stood at nearly 35,300 units. This is expected to grow to 87,300 units by 2020 with significant volumes being added by existing players apart from new entrants like Lexus, Infiniti, and Genesis brands.
Luxury vehicle sales in 2015 marked a growth of 6.4% year on year (y-o-y) from nearly 33,200 units sold in 2014. The market was almost entirely led by Mercedes Benz which won back the leadership position from Audi by selling nearly 12,900 units in the year, the forecast said.
IHS noted that its figures were different from Society of Indian Automotive Manufacturers (SIAM’s) dispatch sales data. This was based on retail sales at the dealerships.
“We are optimistic about the growth of the luxury market in India over the next few years. However, growth will require a host of steps like a long-term stable policy in place, fast implementation of the Goods and Services Tax which is vital for ease of doing business and also a rational duty structure etc. The exorbitant import duty structure in India makes the price of luxury cars prohibitive and for sure limits the growth potential of the sector,” noted Roland Folger, Managing Director & CEO, Mercedes-Benz India.
A slew of model launches and a strategy to focus on compact vehicles such as A- and B-Class led the surge in Mercedes’ annual sales. This contrasted with tepid growth rates for Audi and BMW. While Audi’s sales increased 1.9% y-o-y to 11,100 units in 2015, BMW continued to languish at third spot as sales grew 2% y-o-y to 7,500 units.
Although Audi and BMW underperformed the country’s luxury market, their performance was better than competition as Jaguar Land Rover (JLR), Volvo, and Mini posted sales declines during the year.
Anil Sharma, principal analyst, IHS said, “In the immediate future, Audi and BMW are expected to shed their underperformance and gain some ground from Mercedes-Benz which is the most impacted of the lot from the conditional ban on diesel vehicles in the National Capital Region (NCR).”
Following a court order in December, registration of diesel vehicles powered by engines of 2.0-liter or more displacement is halted till March 2016. Although the ban is applicable only in the NCR, it has triggered concerns among buyers in other regions of India that diesel vehicles are in the regulatory line of fire.
While volume models by Audi and BMW have smaller engines, none of the models sold by Mercedes-Benz in India is powered by engine honouring this threshold. “As a result, BMW and Audi are expected to post double-digit sales jumps of 37.9% and 18.5% respectively,” Sharma said.
On the other hand, the regulatory development is likely to result in 6.6% y-o-y contraction in sales volumes for Mercedes-Benz.
Sharma further explained that while this year, the market growth may be mixed owing to regulatory uncertainties, in the coming years, volumes are certainly going to pick up.
“2016 will be a year with opportunities and challenges both. We have a strong line-up of product launches including 12 new offerings and 10 new dealership inaugurations across markets. Mercedes-Benz will be aiming at a sustained double digit growth. However, we will be hoping for stable policy decisions giving a clear road map for the industry,” Folger added.
As such the penetration of luxury cars into the Indian car market is negligible, (around 1.1%) and hence, the scope for growth is immense. Brazil, which is a comparable market, has a penetration of around 2.7%.
According to IHS Automotive forecasts, the market will see a wider participation of luxury brands in the next five years even though the traditional leaders are expected to maintain their lead. Important among the new entrants will be Lexus, Infiniti, and Genesis. Making further inroads will also be Porsche and Volvo in the coming years.
Despite a wider participation by other luxury brands, the three German brands are expected to control more than 80% of the Indian luxury vehicle market in 2020, according to IHS Automotive forecasts.
The next phase of growth in the Indian market will be driven by retail network expansion by luxury automakers beyond the metropolitan areas as well as in other operations including finance. This will be coupled with increasing product localization which is expected to offer the German majors a competitive advantage over their newly-entering competitors.
New compact models including Q2 SUV and A1 hatchback which are scheduled to be introduced in 2017 and 2018 respectively will play important roles in Audi’s revival. On the other hand, BMW will gain from the introduction of next-generation 1-Series which will be offered in hatchback and sedan form.
Penetration of Luxury cars in the Automotive market of major countries
Brazil 2.7% India 1.1% UK 24% Germany 27% China 8% Japan 5%
Source: IHS Automotive