Santosh Iyer, managing director of Mercedes-Benz India, is of the opinion that the Indian luxury car market will continue to grow in double digits in the coming decade. What’s more, it will outpace the mainstream passenger vehicle market by 2-3% as the favourable change in perception towards acquiring luxury cars along with the growing economy will drive the market to new heights.
The Indian luxury car market recorded cumulative sales of 37,000 units in CY2022. Thus, considering even a lowest double-digit CAGR of 10%, the Indian market may double to over 80,000 to 90,000 units-per-annum sales by 2030.
Speaking on the sidelines of the launch of the all-new Mercedes-Benz GLC on August 9, Iyer told Autocar Professional that the compounded annual growth rate of around 10% is a “very reasonable number” for the luxury car market.
Declining to give a specific number guidance, Iyer said: “If you look at the total passenger vehicle market, it has grown by 6-8% and luxury market growth has been 8-10%, which means the luxury segment is slowly increasing penetration. It had gone to 0.9% of the overall market and now it is close to 1.1 percent. It is a slow and steady penetration but to be very pragmatic I think double-digit growth in the region of 10% is what can be sustainable.”
This would also mean that the luxury car market’s penetration could potentially increase to over 1.5 to 1.8% of the overall Indian passenger vehicle market, which could hit 5 to 6 million units per annum by 2030, as forecast by the country’s top two car makers, Maruti Suzuki India and Hyundai Motor India.
To be sure, post covid, the luxury car market has bounced back with vengeance growing at almost double the pace of the mainstream market – on account of a low base.
So far in the first half of this calendar year, the total market has crossed the 20,000 units mark, with a higher second half due to the festive season, the luxury car market is on course for a new peak of 43,000 units this year, say industry players.
Iyer said there are two critical aspects for future growth of total industry volumes – the economic development and the cultural development.
He said all the economic parameters of strong corporate results, high GST collection and growing economy has helped the market to grow at a very healthy pace so far and as the nation moves towards a US$5 trillion economy, with a younger demographic, the market should eventually hit a take-off point.
“The culture transformation is happening, it’s a bit slower, but there will be an inflection point when they both come together in a significant manner, post 2030. Then one may see growth will accelerate beyond low double-digit growth,” he added.
Mercedes Benz India today is the largest car maker in the country and it assembles about 14 models at its factory from an entry A class, to the top of the line AMG performance cars and EQS – all electric vehicles. Thanks to the rising demand and a significant order backlog of over 2500 to 3000 units, the company has added a third shift to cater to the waiting customers.
With the launch of the GLC, the order book has further swelled to about 4000 units, with the new mainstream SUV, generating 1500 units of orders amounting to Rs 1000 crore in revenues within 15 days of opening the bookings, which Iyer claims is the highest ever for a new launch in such a short span of time.
The head of the largest luxury car makers says that the introduction of new models continues to drive sentiment as well as the momentum in the market, and his company has lined up 4 new models for the rest of 2023, to keep the excitement high.
And for him, the biggest priority is to build the desirability of the brand over volumes. In line with the global vision, the company’s top end vehicle or TEV portfolio priced over Rs 1.5 crore has been the fastest growing accounting for almost 25% of its overall sales.
Also with the average price points moving up, the residual value of luxury cars too is moving up for Mercedes Benz.
Experts say the market is maturing fast and the strong residual value could drive the new car sales in the future.
Iyer says the car replacement cycle period has come from 48 to 60 months a few years ago to 36 to 48 months and with Mercedes Benz’s residual value of the car improving – it will trigger future replacement demand.
“Our used Mercedes Benz cars fetch much higher value than what they used to in the past. A three year old used vehicle would earlier fetch a value of 50-55%, today that value has moved up to 60-65%, this in a way could drive new car demand in the future,” added Iyer.
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