Sun, 09 Feb 2014 15:30:00 GMT | By AFP

Indian luxury car market accelerates despite downturn

Experts say for the ‘really rich’, economic downturns have a ‘negligible impact’ on their luxury spending


India luxury car market accelerates despite downturn

Noida: 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 $250,000 apiece in just 16 days.

India's auto industry has skidded onto 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 auto fair in the capital's suburb of Greater Noida last week said for the "really rich", economic downturns have a "negligible impact" on their luxury spending.

The wealthy are much less sensitive to high interest rates and are more resilient overall to downturns, say analysts.

"Luxury cars sales are still growing at 15-percent-plus year-on-year. For the next three years, segment growth is expected to continue at 15 percent upwards," noted a report by the Confederation of Indian Industry and market research firm IMRB International.

Sales have gone into overdrive for parts of the luxury auto segment. Daimler AG's Mercedes Benz, for instance, saw sales rocket 32 percent 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 purchased were the Indian launch edition of Mercedes' latest luxury S-Class sedan, priced at 15.7 million rupees ($250,000).

In sharp contrast, passenger car sales are set to slump close to 10 percent in this financial year to March 2014, forecasts the Society of Indian Automobile Manufacturers (SIAM), after years of growing around 30 percent.

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

BIG SPENDERS

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.

"Economic downturns have a negligible impact on luxury consumers... and income levels overall have been rising," Shrawan Raja of Indian Autos Blog, an Indian motoring portal, told AFP.

Although World Bank figures show 33 percent of the planet's poorest call India home, the country also has minted 65 dollar billionaires, according to Forbes, 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, Porches and other top badges regularly weave through traffic.

The big spenders are top executives, ex-farmers who've 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," Anil Sharma, senior research analyst at IHS Automotive consultancy, told AFP.

India's luxury car market is still tiny -- the total sold by the big luxury players in India, Mercedes, Audi, BMW and Jaguar LandRover, was 30,100. But that number is forecast to climb by 168 percent by 2018, according to consultancy IHS.

'HUGE HEADROOM FOR GROWTH'

The market "is still in its nascent stages," but will be "very important for the future", Mercedes' Kern told AFP, adding, "Headroom for the market to grow is huge".

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

"We've 10 top priority markets which are strategic long-term and India's one of them," Johnson added.

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

Delhi and Mumbai account for 45 percent of Mercedes' sales while the rest come from smaller centres, said Kern, adding more women are 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.

"When a customer graduates to luxury cars, they don't go back to mass-market nameplates," said IHS's Sharma.

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