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Luxury carmakers change lanes to cruise in a slow market

November 06, 2013 09:40 IST

Luxury carmakers change lanes to cruise in a slow market

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Sharmistha Mukherjee in Mumbai

Earlier last month, German luxury car maker BMW launched the 1 series at an entry price of Rs 20.90 lakh (ex-showroom, India) - a mere Rs 46,000 higher than the entry-level variant of Honda’s premium sedan, Accord.

This time, the idea was not to attract the usual well-heeled upwardly-mobile consumer who would otherwise opt for Mercedes-Benz and Audi, or, occasionally, the Jaguar-Land Rover. Instead, with the 1 Series, BMW was eyeing buyers of Honda, Toyota and Volkswagen.

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Image: Audi's Q3 compact SUV in New Delhi.
Photographs: Adnan Abidi/Reuters

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BMW is just another of the many bringing entry-level luxury cars to the market. Earlier, in May this year, compatriot Mercedes had launched its luxury hatchback, A Class, at prices starting Rs 23.39 lakh.
Audi, with its compact SUV Q3, launched last year, has already gained pace in race for the top slot in the luxury market.

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Image: Mercedes launched A Class at Rs 23.39 lakh.
Photographs: Courtesy, Mercedes-Benz
Tags: BMW

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The numbers already seem to reflect consumer preferences. While retail sales of luxury vehicles from the Mercedes and Audi stables have shot up 22 per cent to 13,852 units till September this calendar year (BMW shares only its annual sales numbers), demand for premium sedans like Skoda Superb, Honda Accord and Toyota Camry have shrunk by a fourth to 1,586 units in the first six months of this financial year.

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Image: Bollywood actress Katrina Kaif poses with Audi's SUV Q3 in New Delhi.
Photographs: Adnan Abidi/Reuters

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In this category, sales had dipped 32.2 per cent to 4,358 units in 2012-13, too, according to wholesale data from Society of Indian Automobile Manufacturers. “We are looking for a lot of new customers to enter the BMW world with the 1 series. We will target people in the age group 18-40 years, urban high achievers, educated, who want to drive the car themselves.

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Image: Skoda Superb.


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The 1 Series has proved in other markets that it can make the drivers of high volume cars from Honda, Hyundai and other brands to come over to BMW,” says BMW Group India President Philipp Von Sahr. The company has good reason to bet on entry-level cars to boost its sales tally. In 2012, the X1, with sales of 2,461 units, had accounted for 26 per cent of annual volumes.

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Image: Honda Accord.
Photographs: Reuters

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For Mercedes, too, Next Generation Compact Cars A Class and B Class models account for 25 per cent of the sales in the country. Mercedes Benz India MD & CEO Eberhard Kern says: “Today, one out of every four cars we sell is from the NGCC family. There are broadly two categories of buyers for the A and B Class - the first is of customers who already own a luxury car and are purchasing their second or third vehicles.

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Image: Toyota Camry in Hanoi, Vietnam.
Photographs: Kham/Reuters

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The second group comprises salaried professionals, entrepreneurs and owners of small and medium enterprises who are purely upgraders. In fact, company executives inform more than half the buyers of the newly-launched A Class (tagged upwards of Rs 23.39 lakh; ex-showroom, Delhi) are those who have never owned a Mercedes before.

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Image: Volkswagen Passat in Geneva.
Photographs: Reuters
Tags: Delhi

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The target class includes those looking for a Toyota Camry, Honda Accord, Volkswagen Passat, Hyundai Sonata, Nissan Teana or Skoda Superb. And the pull is such that despite the slowdown in domestic automobile market, the brand already has on roads over 1,000 units of the A Class compact and B Class sports tourers in India.

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Image: Hyundai Sonata.


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The A-Class currently has an order backlog, with waiting periods stretching to over 12 weeks, even as the headquarters in Germany continues to struggle to produce more. Executives at BMW inform that 1 Series would keep the counters ringing.

“The 1 series has been received very well. This car, along with the 5 series would be the key growth driver for the company”, said a senior BMW India executive.

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Image: Mercedes-Benz cars on display in the windows of a dealership of German car manufacturer Daimler in Munich, Germany.
Photographs: Michaela Rehle/Reuters

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Luxury carmakers change lanes to cruise in a slow market

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There has been a coupling effect. With luxury car makers introducing entry-level models, the price differential with premium products has come down by around 30 per cent. This has broadened the target consumer base.

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Image: BMW 4 Series Concept coupe on display in Detroit.
Photographs: James Fassinger/Reuters
Tags: 1

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Additionally, these entry-level luxury products enjoy strong brand value, customers who were initially looking at making purchases in the Rs 15 lakh bracket are stretching their budget to own these aspirational products,” explains Puneet Gupta, associate director at automobile advisory firm IHS Automotive India.

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Image: An Audi A3 at the final check area at the production line of the German car manufacturer's plant in the Bavarian city of Ingolstadt, Germany.
Photographs: Michaela Rehle/Reuters

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Led by the A Class and B Class, Mercedes has reclaimed the number-one position in India’s luxury car market from Audi in the third quarter of 2013.

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Image: Honda Urban SUV concept on display in Detroit.
Photographs: James Fassinger/Reuters

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The company’s sales grew 58 per cent to 2,696 units in the three-month period, compared with 2,545 units sold by Audi.

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Image: Toyota Corolla Furia concept on display in Detroit.
Photographs: Rebecca Cook/Reuters
Tags: Audi

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To keep the excitement going in India, Mercedes will step up its launch pace. Next year, it will launch the GLA, a compact luxury sports utility vehicle, and the CLA, a four-door coupe. Both these models are expected to be priced under Rs 30 lakh.


Image: Volkswagen eGolf car on display in Frankfurt, Germany.
Photographs: Ralph Orlowski/Reuters

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