After 15 years of unrivalled presence in the Indian luxury car market, Mercedes Benz is seeing competition heat up from compatriot BMW. Managing Director Peter Honegg tells Sharmistha Mukherjee and Surajeet Dasgupta the company would not play the price war, but intends to review its marketing. Edited excerpts:
Despite your strong growth in sales, BMW managed to regain the top slot for a second year in a row.
We are the inventors of automobiles and have a legacy of 125 years. We own more than 80 per cent of all auto patents worldwide. We have technological leadership but I have to admit the gap with competition is closing.
Our sales have been good last year, we gained some market share. But I have to look into our company strategy for the Indian market. I have to learn about the perception and the expectation of Indian consumers. I intend to grow with the market, if we grow faster I will be happier.
You have headed operations in China for over five years. What is your first impression of the market here as compared to China?
The markets are largely similar in terms of size and customer perception. China has had a head start because we started operations there earlier. If you look at the growth rates, the two markets are showing similar development traits except that in India it is happening a little later. In the foreseeable future I see India joining the premium league. India will be amongst the top 3-4 markets along with Germany, United States and China.
Infrastructure may pose a challenge in India. There is a gap here on that front.
Do you think synergies can exist between your operations in India and China?
Synergies are usually necessary between countries where scale of operations is smaller like in Indonesia, Thailand. You can then make one product in one country and sell it elsewhere. India, in the mid-term, stands on its own because of the sheer size of the market. We have, therefore, set up a development centre in Bangalore here for global markets. We have around 650 people there who develop products for sale globally.
The ability of a manufacturer to run operations profitably is said to depend on the capacity to indigenize. Are you considering increased localization of your products?
When we decided to introduce the M Class, we went to US to manufacture the product. Today every big vendor is present in India and we are interlinked with them. India will be one of our biggest markets on a long term basis. The sourcing from here will get bigger, it is a natural trend. We are already sourcing components from India for our global operations.
Will the number of products you assemble in India also go up?
The tariff structure is a barrier for marketing products in India. Import duty amounts to over 100 per cent on completely built units (CBUs). But not every product in our portfolio is available for assembly. We have limousines, especially for Europe – a seven-seater station wagon - which would not be accepted in south-east Asian markets. We are looking into every product which can be assembled locally, the pricing has to be right. We have not taken a final decision yet.
Luxury car makers such as Jaguar and BMW have curtailed price points, bringing in products at lower price segments to boost sales. Would you consider products in similar brackets for the Indian market?
Price sensitivity gets higher the more you go down segments. The Mercedes buyer cannot strictly be said to be price-conscious. We will not go aggressive on price structures, we will deliver value for money. We are proud that our cars have the highest resell value compared to others today. The right strategy for us is to position our products properly and we will play around that.
We have not been aggressive in our marketing approach. We have to go closer to the customer. We have to talk more to our dealers and convince potential customers that despite being the oldest manufacturer, we are a young brand.
Mercedes has forayed into the pre-owned car business. How has it helped increase your presence in the country?
The venture is a business strategy for us. Instead of being aggressive on pricing we wanted to get more people into our brand. But you have to also be right with pricing cars in the business so as not to devalue the brand. We have the capability to support cars, in our pre-owned business, which are 10 or even 20 years old. We are also starting our financial services in India which would support second-hand purchases of Mercedes cars.
