India Sees Downshift in Sales of German Luxury Imports

MUMBAI – German luxury auto makers Mercedes-Benz, BMW and Audi have not been immune from the cooling-down of India’s auto market.

Their combined first-half car and light-truck sales totaled 10,443 units, a 21% increase from year-ago, according to WardsAuto data. However, the auto makers’ 23,544 deliveries in 2011 represented a 263% spike from 2007 (Audi did not enter the Indian market until 2009).

Mercedes, BMW and Audi now are trying to reach buyers by offering huge discounts, longer warranties and more affordable models.

The German auto makers long assumed their customers looked not at price tags but at the latest features and ever-improving performance; in short, something better than what their friends or business associates had just bought last month. Even with specifications and performance data available, many purchasers acted impulsively.

Now, emotion is becoming less of an influence on affluent customers. Demand for fullsize cars is giving way to more-spacious compact SUVs with smaller 2.0L engines. The Audi Q3 and BMW X1, competitively priced at Rs3.4 million ($60,715) and Rs3.2 million ($50,150) are becoming star attractions.

Mercedes is going a few steps downmarket with products such as the new A-Class at Rs1.8 million ($32,150) and the B-Class Sports Tourer at Rs2.2 million ($39,300). Three more compact super-luxuries, a 4-door coupe and two SUVs, are planned; Mercedes intends to launch no fewer than 10 new models in the Indian market by 2015.

One of the obstacles Mercedes must overcome as soon as possible is its lack of right-hand-drive SUVs. “We have now fast-tracked our plans to assemble the M-Class and GL-Class  SUVs in India from (completely knocked-down kits) with right-hand drive,” Sales Director Debashis Mitra says.

Despite Mercedes’s 20-year head start in India, BMW and Audi are making inroads with models appealing to young buyers. Mercedes to an extent is following their lead, but also is relying on its brand appeal, distribution network and reputation for quality service to win back the No.1 luxury position in India.

The shift from complete-built-up imports of luxury models to their local assembly from CKD imports is gaining speed.

India’s finance minister in March increased the duty on CBU car imports costing more than Rs2.2 million ($40,000) from 60% to 75%. But with the inclusion of related fees and surcharges, the duty effectively is raised from 120% to 151%. All the importers of super-luxury models have responded by initiating local CKD assembly, resulting in lower prices.

Auto makers primarily building volume sedans and compacts also produce one or two higher-end cars or SUVs, such as the Honda CR-V, Nissan X-Trail, Skoda Superb, Toyota Land Cruiser Prado, Ford Endeavour and Volkswagen Phaeton and Passat. Almost all are made in India from CKD kits.

Less affected by higher taxes and a decline in the rupee’s value, if at all, are buyers of super-luxury cars sold by Aston Martin, Bentley, Jaguar Land Rover, Lamborghini, Maserati and  Porsche costing between Rs20 million-Rs40 million ($360,000-$700,000). Those models continue to be imported as CBUs because their low volumes don’t justify local CKD assembly.

The government is considering a demand by the European Union in negotiations toward a free-trade agreement that India allow CBU imports of up to 250,000 vehicles over a 5-year period at a concessional import duty of 10%.