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COMMENT: HNIs will make India a top 3 luxury car market by 2020

Despite the overall slowdown of India’s automotive market, the country’s luxury vehicles segment – that is those cars which are 4.5m in length, priced above US$32,000 or have an engine size of at least 1800cc – continues to grow at double digits. Although current market numbers for the luxury segment might not seem that significant (2% market share with 52,940 units sold in 2011-12), the underlying potential is immense. Consider this: compared with a 19% growth (CAGR) of passenger vehicle sales between FY 2009 and FY 2012, the luxury vehicles segment grew at a whopping CAGR of 32% during the same period.

Industry experts estimate that annual luxury vehicle sales in India will top 325,000 units by 2020, becoming the third largest luxury vehicles market in the world, behind only the USA and China. These figures are in line with the growth of the key demand driver of luxury vehicles: high net-worth individuals (HNI). Thanks to the country’s strong economic performance in the last decade, combined with continued GDP growth of above 5% annually, India saw its HNI population reach 205,000 in 2012, a number which is expected to rise sevenfold to about 1.5 million by 2020.

Industry experts estimate that annual luxury vehicle sales in India will top 325,000 units by 2020, becoming the third largest luxury vehicles market in the world, behind only the USA and China

The makers of luxury vehicles increasingly keep an eye on another characteristic of this market: the growing demand from Tier Two and Tier Three cities, which house 33% of the country’s HNI population. OEMs have started holding road shows in these cities, in an attempt to reach the target consumers here, typically wealthy landowners. Luxury vehicle OEMs, such as Mercedes, BMW, Audi and Jaguar, are also spreading their dealer networks to these areas.

Apart from the underlying market potential, the type of luxury vehicles entering India is also an interesting aspect of the story. SUVs account for 75% share of the luxury vehicles market, with small SUVs capturing almost 50% of this share in 2011-2012. SUVs are more popular than other luxury vehicles largely due to the high aspirational value assigned to them by the nouveau riche, and also supported by favourable price positioning (US$32,000-50,000). Moreover, if import duties are slashed, as is being proposed in the EU-India FTA, Indians will have access to a wider range of SUVs and other luxury vehicles, which will further boost the market for luxury vehicles in the country.

The makers of luxury vehicles increasingly keep an eye on another characteristic of this market: the growing demand from Tier Two and Tier Three cities, which house 33% of the country’s HNI population

In addition, several OEMs are keen on setting up local production which will allow the price of luxury vehicles to decline further. BMW, for example, has recently started local production of its MINI Countryman, and this is expected to reduce the price of the car. Additionally, as part of the company’s efforts to reach out to the lucrative sub-US$40,000 market, it is also planning to start local production of the 1 Series later this year. Other OEMs such as Audi and Daimler are also expected to expedite their luxury vehicle localisation efforts.

It is no wonder that luxury vehicle OEMs have set out to find a new home in India. Supported by favourable demographics, rising disposable incomes and strong business economics, it is just a matter of time before luxury vehicles become a common sight on Indian roads.


The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd

Manmeet Malhi is a senior analyst at EOS Intelligence (www.eos-intelligence.com).

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