Driving In The Fast Lane

The Indian luxury car market is fairly small compared to the European and US markets. However, the pace at which it is growing is driving global luxury car makers to believe that the country will be their biggest growth driver in the next decade. Data from auto industry tracking firm J.D. Power and Associates shows the the luxury car market grew an impressive 69 per cent (to 13,386 units) in the January-November period of 2010 compared to the same period in 2009.

BMW, which sold 5,269 units in the January-November period, is currently the market leader, closely followed by Mercedes Benz (4,947 units). But 2010 was particularly good for Audi, which recorded a growth of 95 per cent in the same period, followed by Mercedes' 69 per cent and BMW's 57 per cent. Tata Motors' Jaguar Land Rover (JLR), too, recorded  growth of over 187 per cent, but its sales (in India) — around 213 units — are still negligible compared to the big three.

BMW's 3 series and 5 Series sedans are its highest-selling models. In the January-November period, both cars saw sales of over 2,000 units each. With BMW launching a compact sport utility vehicle (SUV) X1, starting at Rs 22 lakh, the market is set to get competitive (also read ‘The X Factor' on page 60).

Sales figures are encouraging, but there are challenges. Setting up a wide network of dealerships, especially in non-metros, will be critical to grab market share. Analysts reckon there is huge latent demand in ancillary towns such as Panipat, Pune, Nashik, Coimbatore and Tirupur. And there is reason to believe so. In 2010, Mercedes saw bulk bookings by businessmen in Aurangabad and Kolhapur in Maharashtra. "Luxury car makers are looking at expanding their base in tier-2 markets and these markets are set to multiply," says Kapil Arora, partner at Ernst & Young for automobile practice. Currently BMW, Mercedes and Audi have around 36 dealerships among them in India.

Easy finance options for buyers will also play an important role in expanding the market. Currently, a major chunk of orders comes from the corporate sector. Arora says that for volumes to grow, financing will come into play from next year, and will essentially create a niche in the used luxury cars market.

"Asset quality of the retail auto loans has improved over the past two years as banks have tightened their underwriting standards and the economic environment has been benign," says Pawan Agrawal, director of Crisil Ratings. He adds that demand for auto loans in the passenger car segment remains robust and that all the sub-segments, from low-end cars to luxury cars, will continue to grow in 2011.

Companies also plan to bring captive financing arms this year to offer attractive deals to buyers. Most analysts expect the luxury car segment to grow over 50 per cent in 2011 compared to the 20 per cent growth in the passenger car market. Aspirations are indeed growing.

(This story was published in Businessworld Issue Dated 17-01-2011)