Luxury Automakers Not Discouraged by India Slump

MUMBAI – Sales of super-luxury cars in India have slowed to a crawl, but manufacturers don’t believe the tank is empty.

Luxury-car sales increased 30.7% in 2011 and 25.1% in 2012, then plummeted to 2.1% in 2013 and 1.4% from January through October. The overall Indian market was down 2.3% in October compared with the previous month, and deliveries in the year’s first 10 months were off 3.8% from like-2013, WardsAuto data shows.

The drop-off in luxury-car sales reflects the country’s slumping economy, the depreciating rupee against the U.S. dollar and, significantly, sharp increases in customs duties on imports of fully assembled luxury cars – from 40% to 60% in 2012, then to 75% in 2013 and to 100% this year.

These factors have doubled the prices of the Rolls-Royce Ghost and Phantom models, for example, to Rs50 million ($834,000) and Rs75 million ($1.25 million, respectively. The automaker sold 90 cars in 2011 but only 40 so far this year, but is considering adding to its network of five dealerships.

The 15 luxury-car automakers, however, remain confident in demand for their 80 model variants.

The segment is expected to grow from about 32,000 units in 2013 to nearly 50,000 this year, according to IHS Automotive. Volumes for Audi, BMW, Mercedes and Jaguar Land Rover, which totaled 30,100 last year, are estimated to soar 168% by 2018, the consultancy says.

India’s luxury-market offerings range from Rs2.2 million ($37,000) for an entry-level Audi to Rs130 million ($2.2 million) for a Bugatti Veyron supercar.

Entry-level luxury compacts are in such demand that new models are bought within a few days of going on sale. Typical customers are young, well-educated professionals with high aspirations who are attracted to the cars’ quality and affordability.

These buyers come not only from major metropolitan areas and state capitals but also from pockets of Tier 2 (50,000-99,000 residents) and Tier 3 (20,000-49,000) cities. The average customer’s age has come down from 50 years to 35.

At the other end of the spectrum from entry-level luxury models, cars at the highest level of performance are returning to the Indian market. Manufacturers include Bentley, Ferrari, Lamborghini and Maserati.

“India is a hub of luxury for Bentley,” says Chris Buxton, regional manager-India, South Africa and Middle East for the Volkswagen-owned marque.

New opportunities also are arising for manufacturers operating in India. Fiat Chrysler is investing Rs15 billion-Rs25 billion ($250 million-$415 million) in local production of premium Jeep SUVs priced at roughly Rs2.5 million ($42,000) for export to Australia, the U.K. and South Africa.