Luxury car sales to double by 2020 IHS

While sales in 2015 stood at 35,300 units, it is expected to grow to 87,300 units

Despite the recent ban in Delhi on fresh registration of diesel vehicles with over 2,000cc engine capacity, analysts believe luxury vehicle sales in the country will more than double in the next five years.

In 2015, luxury vehicle sales in India stood at 35,300 units, according to IHS Automotive. This is expected to grow to 87,300 units by 2020 with significant volumes being added by the existing players apart from new entrants like Lexus, Infiniti, and Genesis.

Luxury vehicle sales in 2015 grew 6.4 per cent year on year (y-o-y). The market was led by Mercedes-Benz which won back the leadership position from Audi by selling nearly 12,900 units. IHS noted that its figures were different from Society of Indian Automobile Manufactures (SIAM’s). This was based on retail sales at the dealerships.

“We are optimistic about the growth of the luxury market in India over the next few years. However, growth will require a host of steps like a long-term stable policy in place, fast implementation of the Goods and Services Tax which is vital for ease of doing business and also a rational duty structure, etc. The exorbitant import duty structure in India makes the price of luxury cars prohibitive and for sure limits the growth potential of the sector,” noted Roland Folger, managing director & chief executive officer, Mercedes-Benz India. A slew of model launches and a strategy to focus on compact vehicles such as A-Class and B-Class led the surge in Mercedes’ annual sales. While Audi’s sales increased 1.9 per cent (y-o-y) to 11,100 units in 2015, BMW continued to languish at third spot as sales grew 2 per cent (y-o-y) to 7,500 units.

Although Audi and BMW underperformed, they did better than Jaguar Land Rover (JLR), Volvo, and Mini which posted decline in sales.

Anil Sharma, principal analyst, IHS said, “In the immediate future, Audi and BMW are expected to shed their underperformance and gain some ground from Mercedes-Benz which is the most impacted of the lot from the conditional ban on diesel vehicles  in the national capital region (NCR).” The regulatory development is likely to result in 6.6 per cent yoy contraction in sales volume for Mercedes-Benz.

Sharma said while in 2016 the market growth may be mixed owing to regulatory uncertainties, in the coming years, volumes are certainly going to pick up. Penetration of luxury cars in Indian market is negligible (around 1.1 per cent). That’s why the scope for growth is immense. Brazil, which is a comparable market, has luxury car penetration of around 2.7 per cent.

“We have a strong line-up of product launches including 12 new offerings and 10 new dealership inaugurations across markets. Mercedes-Benz will be aiming at a sustained double digit growth. However, we will be hoping for stable policy decisions giving a clear road map for the industry,” Folger added.

According to IHS Automotive forecast, the market will see a wider participation of luxury brands in the next five years even though the traditional leaders are expected to maintain their position. Important entrants will be Lexus, Infiniti, and Genesis. Porsche and Volvo are likely to make further inroads.

Despite a wider participation by other luxury brands, the three German brands are expected to control more than 80 per cent of the Indian luxury vehicle market in 2020.

The next phase of growth in the Indian market will be driven by retail network expansion by luxury automakers beyond the metropolitan areas as well as in other operations including finance. This will be coupled with increasing product localization which is expected to offer the German majors a competitive advantage over their newly-entering competitors. 

New compact models including Q2 SUV and A1 hatchback which are scheduled to be introduced in 2017 and 2018 respectively will play important roles in Audi’s revival. On the other hand, BMW will gain from the introduction of next-generation 1-Series which will be offered in hatchback and sedan form.