Affluent Classes Still Conservative In Buying Luxury

Affluent Indians wary of spending big on luxury is one of the reasons luxury car sales account for just 1% of the overall passenger vehicle market, said Santosh Iyer, vice-president of sales and marketing at Mercedes-Benz India Pvt. Ltd. He will soon take over as the local unit’s managing director and chief executive. Consumption in the affluent section of the population will have to grow in tandem with savings to expand the market, he added.

“There is a lot of wealth in India. It is evident from the savings. When we see savings growing, we realize there is a large affluent class in India which is conservative when it comes to enjoying luxury products. That’ll need to change over the next few years to propel luxury car market growth," Iyer said. “Some of these potential customers are affluent enough to buy our top-end AMGs and Maybachs, but they may not have entered the luxury segment at all," he added.

These relatively older people, with a conservative mindset, think uncertainties of the future are still there, and postpone their purchases or don’t come to the market at all, Iyer said.

However, Iyer said there is a growing breed of young luxury buyers with high disposable incomes, who have a greater tendency to spend on top-end cars.

“We also have a lot of young customers who are wanting to live the YOLO (you only live once) life, which explains the 42% year-on-year growth we have seen in the first 10 months of the year and 70% growth in our top-end models which have grown faster," Iyer said.

Mercedes Benz India saw a 70% growth in sales of cars priced more than ₹1.5 crore in January-October from a year earlier. These models include the S-Class, S-Class Maybach, GLS Maybach, and performance-oriented AMGs. The German carmaker sold close to 2,000 cars priced more than ₹2 crore in 2021 alone. It launched three variants of its 7-seater SUV, the GLB, including an electric variant, the EQB, in India on Friday, making it the fourth electric car in the Mercedes-Benz portfolio in India. The carmaker assembles its flagship EQS sedan in India. The model is priced over ₹1.5 crore for the base variant.

Mercedes-Benz has an order bank of more than 7,000 units, and has waiting periods running into two or more months for most of its models. While infrastructure development, a favourable tax regime and higher discretionary spending will be imperative to growing the market in the medium-to-long term, supply-chain constraints may dampen a significant scale-up in volumes in the future.

“On the demand side, we continue to see a strong order intake and don’t see the market slowing down as of now. On the other side, how much more sale we can do depends on the global supply chain situation. We have capacity to produce more than 20,000 cars annually, which can go up to 40,000. But are we able to get kits? Will we get the parts? That’s a big question mark and a challenge that we are facing continuously. We don’t expect this to change drastically soon because the situation in different parts of the world with respect to the pandemic and the Ukraine-Russia war is not resolving fast enough. While chip supplies are improving, we are encountering other logistical challenges. We are having to bring in parts by air because of constraints in container availability. Shipping costs have also gone up multifold which is putting a lot of pressure on us. So we don’t expect the supply-side situation to improve soon," Iyer said.