Luxury car market in slow lane

New cesses & uncertainty on diesel expected to lead to a decline this year in segment sales

The domestic luxury car market, which has seen stable growth in recent years, is declining this year due to uncertainties on diesel vehicles and a sudden shift in buyers’ preference towards petrol cars.

The decline comes as the passenger vehicle and two-wheeler industry looks well placed to clock double-digit growth.

“This is a year with few challenges, to be honest. We see that the luxury market is significantly down, with a drop of 10-15 per cent. This is not a surprise. The Union Budget was not too kind to us (an infrastructure cess of three-four per cent was imposed). Then, we had the diesel ban for most of the year in the NCR (Delhi and around). It created quite a bit of uncertainty around the country. To be fair, we are not able to cope with the sudden shift to petrol,” Joe King, head of Audi India, told this newspaper.

Audi, part of Germany’s Volkswagen Group, is the second biggest in the Indian luxury car market. The bulk of these cars still run on diesel.

In 2015, the luxury segment, one per cent of the Indian car market, grew 13 per cent to about 35,000 units. Segment leader Mercedes-Benz grew sales by 32 per cent to a record 13,502 units.  Audi’s sales increased nearly two per cent, to 11,100 units; BMW sold 7,500. The rest of the volume came from Jaguar/Land Rover and Volvo.

In the first six months of the current calendar year, Mercedes saw a marginal drop in volumes to 6,597 units, compared to 6,659 in the period last year. King said Audi might lose sales of 2,000 units in the whole year, due to the NCR challenge. “It (industry) is going to see a significant decline,” he said.

Mercedes says the company will be happy if it maintains last year’s volume. “2016 has been a challenging year for the overall industry and for some luxury brands specifically, like Mercedes-Benz. We faced a sales decline in one of our key markets, Delhi-NCR, due to the diesel ban. However, our sales in the remaining markets remained positive and we expect some growth. Achieving last year’s sales volumes will also be an achievement,” said Roland Folger, managing director at Mercedes India.

In December last year, the Supreme Court imposed a ban on sales of diesel vehicles with an engine capacity of 2,000cc and above in the NCR, to address pollution. The ban impacted sales of diesel vehicles even for engines below 2,000cc. The ban was lifted in mid-August, after the industry agreed to pay a one per cent cess.

“Our cars are under 2,000cc but there is an uncertainty in the mind of customers. We have decided to realign our fuel strategy. By the first quarter of 2017, all our models will have a petrol option,” said King. Mercedes has successfully brought petrol variants across products; most of its products came under the ban.   

“Till last year, only two-three per cent came from petrol, as the presence was limited. When we have the full product range, it can go to 30 per cent. At the end of the day, it is not about what we want to sell. It is about what customers want,” added King.