When I got the opportunity of heading the India operations of Mercedes-Benz, I was excited because India is a fast emerging market within the Mercedes-Benz world and the market growth achieved here is a regular discussion topic in Stuttgart, our headquarters. The enthusiasm is not unfounded when one glances at the steady growth rate of Mercedes-Benz in India in the past few years. From selling 5,000-odd cars even five years ago, we have already sold more than 10,000 cars in the first nine months this year and 2015 will be the best-ever year in the history of Mercedes-Benz in India. We have realised the potential of the Indian market and the growing economy, and, along with our dealer partners, have invested in the country. We see a lot of accomplishment in 2015 but I do firmly believe that 2016 could be a year of reckoning. What we need is faster implementation of all the plans and directives and to get started on measures that would make the auto industry the real lifeline of the Indian economy.
In 2015, the going has been strong like never before, given the multitude of factors that have worked for the luxury auto industry in general and Mercedes-Benz in particular. With the increasing number of India’s rich and affluent, owning a luxury car is no more a distant dream for many. The growing aspirations, buoyed by growing affluence, a stable economy and positive sentiment have been key aspects for luxury carmakers to perform well. With less than approximately 20 cars per 1,000 people, India has one of the lowest density of cars among all the BRIC countries. At an estimated 34,000 units of luxury cars sold in the calendar year 2014, the contribution of luxury cars is at a miniscule 1.3 percent of the overall automotive industry. This presents immense growth opportunities for the luxury sector in India. Compared to this, think of China where the luxury car contribution is at 7 percent of the total passenger car market and in the US it is even higher at around 11 to 12 percent. This only means we have more potential to explore emerging markets like India.
Mercedes-Benz India, for instance, has the densest luxury network among all luxury carmakers in India, but with 80 outlets in 41 cities we have a vast market that remains unexplored, and which introduces potential customers to luxury motoring. If we are able to take the contribution of luxury cars to even 4 to 5 percent in the next five years, we will see a lot more customers being able to own a luxury marquee like a Mercedes-Benz. However, this will only be possible with well thought-out initiatives from the government and many firm decisions to aid the growth of the industry in India.
The automotive industry’s growth and environmental concerns are closely entwined. The year 2016, I hope, should also be the year of reckoning again, in terms of progressive steps from the government on this subject. We desperately need introduction of Euro 6 engines in India, which are environment friendly and technologically advanced. If Euro 6 engines can be implemented in developed economies, there should be no reason why Indian customers shouldn’t be offered the latest engines and latest technologies that would benefit them. Short-term measures adopted like stopping the sale of diesel vehicles etc will not help the environment, as long as older vehicles aren’t taken off the roads, or even the quality of fuel available remains below standard, compared to other developed nations. It is essential that a more robust and efficient public transport system is developed and efforts are made to reduce emission levels and pollution. But it requires a balanced approach and a long-term vision.
I think 2016 has a lot of hope and aspirations in store for us as a country. The economy is looking to perform better next year and India’s burgeoning middle-class with their growing affluence and spending power is a good sign for the strong growth of the economy. This will further be spurred by low commodity prices and a stable inflation. We are confident that the domestic demand will remain strong in India and all automotive players are banking on this aspect. I see India playing an increasingly important role in the global economy along with China, and this sentiment is also based on the 2015 IMF’s World Economic Outlook, which puts India’s growth rate to rise above the other major emerging market economies. The IMF estimates India’s growth to strengthen from 7.3 percent in 2014-15 to 7.5 percent in the coming year. Here the government’s policy reforms come into the forefront even more, as more investment is likely to come to India with reforms and ease of trade. We have already invested Rs 1,000 crore in our production facility in Pune, and our dealers together have invested another Rs 750 crore in their facilities. It is obvious that with faster policy reforms comes higher investment and this is one of the areas in which we expect some progress.
Mercedes-Benz India expects the luxury car market to grow in low double digits this year and touch 40,000 units in annual sales. We, however, don’t see very high growth coming in the sector as a lot depends on policy changes. However, Mercedes-Benz will continue to have a double digit growth in 2016 and we are confident of maintaining our growth momentum. If one notices, even in 2014-15 the growth of luxury cars overall was muted and it was Mercedes-Benz that outgrew the other luxury brands and bucked the trend. We will continue our product offensive in 2016 as well and I think getting the customers excited and keeping them engaged with the brand is critical for any automotive brand.
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(This story appears in the 22 January, 2016 issue of Forbes India. To visit our Archives, click here.)