MUMBAI|NEW DELHI: Hit from all corners, the Indian luxury car market is expected to post its first ever decline in 2016 since Mercedes Benz officially started selling in India in 1994. Mercedes Benz India managing director Roland Folger said 2016 has been the toughest year for the luxury car industry in a while. He thinks it would be unrealistic to hope that last year’s numbers can be achieved.
First, there was the 2-litre diesel vehicle ban in the National Capital Region that accounts for almost a fourth of the market, followed by a 1 per cent extra tax in the Budget, an infrastructure cess of 1 per cent and finally demonetisation. All this has meant that the top two luxury car makers, Mercedes Benz and Audi, which account for 60 per cent of the market, are likely to post flat numbers or declines for 2016.
The other key players—BMW, Jaguar Land Rover and Volvo—are likely to post moderate growth. Overall, the market is seen declining 2-3 per cent in 2016 to 35,000 units from 36,000 units in 2015. Mercedes Benz India had forecast 20 per cent growth in 2016 after registering a healthy 30 per cent growth in 2015.
“Till August we had the diesel ban crippling our sales in the key Delhi NCR market and since November we have the short-term effect of demonetisation in addition to the additional cess levied on luxury cars,” said Folger. “These factors have negatively affected the customer sentiment, resulting in lesser footfalls and enquiries at the dealerships.”
The bigger loser in volume and market share has been Volkswagen Group-owned Audi, which saw some challenges on diesel vehicle recalls besides availability of diesel engines in new vehicles. Audi is estimated to post a drop of over 20 per cent to 8,500 units, which the likes of BMW, Volvo and JLR have taken advantage of.
BMW India, declining since 2012, bounced back in the first nine months of 2016, registering growth of 20 per cent. The demonetisation effect may subdue this to 10 per cent, with JLR and Volvo registering similar growth rates on a lower base. “Demonetisation will impact consumer sentiments and our business in the immediate future,” said Frank Schroeder, acting president, BMW India. “Consumer sentiments are expected to stabilize and business to resume normal pace over the next few months…
(However) from a long-term perspective, demonetisation will be beneficial for doing business in India.” After a tepid first half, luxury car makers had been expecting demand to take off with the festive season. However, demonetisation soon after that hit enquiries and footfalls across brands, segments and markets.
For most, footfalls have dropped as much as 50 per cent over the past month with customers deferring purchase decisions over uncertainties in the economic situation. The sharp drop in demand after a lacklustre year has made most companies revise their growth targets downwards for 2016.
Volvo Auto India too, which was earlier expecting to grow 25 per cent to 1,750 units in 2016, has reined in its growth target for the year. Volvo’s growth has been steered by new launches, the XC90 and the S90. “The expected growth was more than the possible 10 per cent we will grow this year,” said Tom Von Bonsdorff, managing director, Volvo Auto India.
Going ahead, vehicle manufacturers are optimistic. Mercedes Benz is confident of the mid to long-term potential of the Indian market and will aim for double-digit growth in the coming year. Volvo is aiming at cornering a segment share of 10 per cent by 2020 and expects a steady 20 per cent compounded annual growth rate.