The rapid expansion of the luxury car market in India

The market for premium vehicles in India is expected to grow exponentially over the next few years on the back of a rising high net worth individuals’ population; low current ownership rates, local investment by foreign car companies and a focus on compact vehicle sales. IHS Automotives estimates the luxury cars segment will grow from 32,000 units in 2013 to 50,000 units by the end of fiscal year 2015.  Combined sales volumes in 2018 for Audi, BMW, Mercedes and Jaguar Land Rover are forecast to increase by 168 per cent.

India is the world’s seventh largest market for ‘passenger vehicles’ and firmly focused on the top spot. According to a 2014 report by India’s Economic Times (ET), this growth is fuelled by the luxury car market, which has grown from 4,000 units in 2007 to 33,000 units in 2014 and is projected to reach 100,000 units by 2020.

“India is the world’s youngest consumer of luxury cars”

The luxury car market in India has grown much faster than the mass-market segment and the trend is expected to continue as young, educated Indians enter this market with high levels of disposable income. “India is the world’s youngest consumer of luxury cars” said Joe King of Audi in an interview with Times of India. The average age of a luxury car owner in India is 35 compared to a global average of 43-45 years.

Historically, luxury car buyers used to come from wealthy cities such as Mumbai and Delhi. This is changing as car makers target other cities with untapped potential. “Along with the metropolitan centres, we foresee growth potential among the young achievers, predominantly from tier 1 and tier 2 cities, which have a dynamic attitude and are technology savvy,” Philipp Von Sahr, president, BMW Group India said in an interview with ET. The high demand for luxury amongst India’s well-heeled, highly educated classes is paralleled by equally high demand from India’s aspirational young middle class.

The Indian luxury car market is dominated by Audi, 2015’s market leader with sales of 11,292 units; followed by Mercedes with 11,213 units and BMW which sold just over 7,000 units. They account for 95% of India’s luxury car market and are now focusing on the‘millennial generation’ looking for compact saloons as a smaller, less expensive alternative to premium luxury cars. Mercedes expects its compact cars sales to position the company as market leader in the Indian luxury automaker industry.

Foreign companies have begun investing locally

Realising that the high cost of importing luxury cars is unsustainable, foreign companies have begun investing locally by building plants, opening more points of sale and investing in sales, marketing and advertising and customer service. Mercedes, currently the fastest growing luxury brand in India, has doubled its production capacity to 20,000 units.
Audi’s experience in China shows the advantages of gaining an early foothold in the market. Audi entered China before its other German competitors; China now accounts for 30% of its sales.