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Driving A Bargain.

Summary: Luxury motoring gets cheaper in India as Mercedes, BMW and Audi launch compact hatchbacks, sedans and SUVs.

Tilak Ajmani, a Ranchi businessman, wanted to buy a car for his son. After some research, he ended up having to choose between two luxury manufacturers: Mercedes and BMW. A compact sports utility vehicle (SUV) from BMW India and Mercedes-Benz India's entry-level sedan both offer the best technology. But, finally, he chose the BMW X1 because it was Rs 6 lakh cheaper.

Ajmani is part of a growing section of rich Indians carmakers are targeting with compact luxury cars that offer the bragging rights, but at a lower price. The price of these start at Rs 20 lakh, while top-end luxury cars could cost between 20% to 50% more.

A report by Kotak Wealth and ratings firm CRISIL shows that 34.5% of luxury cars are owned by professionals and women. "More and more young and successful people have the money to own these cars," says Philipp von Sahr, president, BMW Group India.

Joe King, head of Audi India, adds: "The compact luxury segment is attracting a new buyer to the industry. However, this is not taking away the buyers from our existing segments."

Industry experts say some compact luxury car buyers are people who would have bought a Toyota Camry, which starts at Rs 24.8 lakh, or a Honda Accord, which costs Rs 21.14 lakh for the top model.

Amit Kaushik, principal analyst at IHS Automotive, says there is huge potential in this segment: "Luxury carmakers have started addressing the emerging community, which is a large buyer base."

BMW was the first to drive into India's compact SUV market in December 2010, and has already notched up sales of about 2,500 X1s a year. Since then, both Mercedes and Audi have also rolled out smaller cars for the growing number of upper middle class, young professionals and women with loads of disposable income. Between the three luxury carmakers, they have five compact cars in India.

Audi took on the X1 with its own compact SUV, the Q3, while Mercedes has the B-Class compact tourer, a combination of an SUV and a sedan. Later, BMW launched the 1-series hatchback while Mercedes came out with an A-Class hatchback. Even Volvo has joined the race with the XC60, another compact sports utility vehicle.

"There are some segments that have developed in the past couple of years," says Eberhard H Kern, Mercedes India's MD and CEO, referring to the compact luxury segment. "Look at sound systems (or) electronic items, everything is moving towards compact and we see the same (with) automobiles."

Luxury cars account for just 1% of India's automobile market, but car manufacturers are betting on smaller cars in this segment to improve sales.

With the US car market stagnating and the European industry in slowdown, carmakers have had to look at new growth markets. China was the obvious choice with 19.3 million cars sold in 2012, but when German carmakers failed to crack the luxury hatchback market in China, India was the next option.

India is the world's largest hatchback market with about 18 lakh cars rolling out of its factories every year and demand is unlikely to weaken even though the economy is in a funk.

Top-end sedans and saloons such as the Mercedes' S-Class, BMW's 7-Series and Audi's A8 will continue to rule the luxury cars segment, but, carmakers also expect an increasing number of buyers to spend about a quarter of a crore for smaller versions of these brands.

Industry experts say India's luxury car market is likely to quadruple by 2020 from a little over 20,000 cars in 2012.

Mohan Mariwala, MD of Auto Hangar, a Mumbai-based Mercedes dealership, says about 40% of his customers are looking at new-generation cars: "We are getting customers who would otherwise never walk into our showrooms."

Earlier, luxury car manufacturers would have probably scoffed at the idea of making compact cars. Some industry experts say they are taking a risk by moving away from the luxury segment. Akshay Bhalla, managing director at Protiviti Consulting, says, "(When) bringing these cars at these price points, if they don't do well, it is a great loss of brand value."

However, the carmakers are already in top gear. Audi booked 500 Q3s within five days of launch, and Mercedes sold more cars than Audi and BMW in July, with a quarter of Mercedes' sales coming from the compact segment. Kern expects this to increase to 40% by 2016. The German carmaker has two more compact vehicles planned-the CLA, a compact sedan, and the GLA, a compact SUV.

Clearly, good things do come in small packages in India.

Courtesy: Business Today

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Publication:Money Today (New Delhi, India)
Geographic Code:9INDI
Date:Dec 1, 2013
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