Luxury car market to have slowest growth: Andreas Schaaf

Sales of Indian premium and luxury cars are expected to sputter to a crawl this year to its slowest pace in the last decade. The luxury segment may not even touch double-digit growth this year, says Andreas Schaaf, the managing director of BMW India, as a hike in import duty, rupee depreciation and rising petrol prices keep the rich away from buying their dream cars, which have become more expensive.

The segment has been growing at a compounded annual growth rate (CAGR) of above 30 per cent over the last few years. But the gravity of the current slowdown is such that despite plans to launch four to six new products over the next 12 months, BMW India has revised its target downwards for 2012 and 2013 as well.

Talking on the sidelines of the launch of the New 3 series sedan, Schaaf,told ET, "It has been one of the toughest years for the luxury car market in the country. First a series of petrol price hikes followed by an increase in import duty for cars and then the steep fall in the rupee all this have made it difficult to price our products."

Earlier in the year, BMW India reportedly aimed to achieve 30-40  per cent growth, but Schaaf says the company will grow by just 10 per cent this year.

Peter Honegg, MD, Mercedes Benz India concurs, "The market has slowed dramatically and it has impacted luxury car sales and we expect a minimal growth from the segment this year."

Luxury cars, which account for less than 2 per cent of India's 2.2-million car market, grew just 9 per cent in the first six months of calendar 2012 with sales of around 12,000 units, compared with a growth of 80 per cent in 2010 for the same period and 35-40  per cent growth in 2011. In fact, for the first time ever in the last five to seven years, the luxury car market showed a negative growth in the month of May.

The Indian premium and luxury car market has been growing at a CAGR of 30 per cent and stood at 23,000 units in 2011. Earlier in the year, industry players had estimated the market to touch 30,000-31,000 units by the end of 2012,but it seems they will miss the target by a huge distance.

Over the last six months, import duty rose from 110 per cent to 140 per cent with finance costs at its high levels of over 11-12  per cent,even as several price hikes in petrol took effect on customer sentiments.

Schaaf however asserts, "India is a very unique market, one never knows when the market rebounds. You can never rule out 50-70  per cent growth in segments. But at the current moment, with hardly any positive trigger, it seems the next year may be even tougher as the country runs up to election in 2014.

In January 2012 to June 2012,Audi India sold 4,000 units growing by 43 per cent,BMW India posted sales of 4457,which the company claims was almost flat and Mercedes Benz with sales of 3,500 units too has remained flat.

The only company to buck the trend in the first six months of the year is Audi. Audis India chief is bullish about the future despite the tough market environment. Micheal Perschke,head,Audi India says, "The total luxury car market is growing by 5-10  per cent,but we have seen a greater positive customer buying behavior for our cars and are confident that Audi will see growth of at least 35-40  per cent this year."

Perschke says, his company is confident of achieving its target of selling 8,000 cars in 2012 driven by the new launches. Experts say the second half is expected to be better with new launches, with hopes that the monsoon will improve and the festival season gives the right push.

"The luxury car market is driven by sentiment and Sensex has got a very important role to play globally across the world," says Debashish Mitra, director,sales & marketing at Mercedes Benz India.

Schaaf maintains it has not revised its mid-term plan of doubling the sales and it will be moving more aggressively on expanding the network which will touch 40 by the end of the year. "We are bringing forward our network expansion plan;we will be starting at least two dealerships a month in the hinterlands and reach out to more cities and more prospective customers," said Schaaf.