German Giants Battle for Slim Slice of Small India Luxury Pie
January 10, 2008

By Nick Kurczewski

NEW DELHI, India -- Like three playground bullies fighting over control of the sandbox, German luxury makes Mercedes-Benz, BMW and Audi are going head to head in the Indian market. 

The strange thing is, even with double-digit percentage growth in luxury vehicles, annual luxury car sales for the entire Indian market will barely surpass 4,000 units for 2008.

Why battle over such a small market? 

Based on interviews with the executives who run the German luxury marques' operations in India here at the New Delhi Auto Expo, the answer has a lot more to do with strategy than it does stubborn pride – though don’t discount the latter completely. 

Mercedes-Benz Capitalizes on Distribution, Quality in India

With Audi and BMW now on the scene, Mercedes-Benz cannot afford to sit idly by and watch others take chunks out of its former monopoly of the Indian luxury vehicle market.  At this year’s New Delhi Auto Expo, Mercedes unveiled Indian-market versions of the new C-Class sedan and CLK coupe.  Mercedes expects sales to climb 18% in 2008, to roughly 3,000 vehicles, Dr. Wilfried Aulbur, managing director and CEO of Daimler India, said in an interview with AutoObserver from the show floor.

How can Mercedes protect itself from a wave of competition?

A dealership infrastructure that dwarfs its competitors is one part of the puzzle, said Aulbur.  In his speech during the Mercedes press conference here, Aulbur pointed out Mercedes’ presence in India spans more than 50 years and its dealership network stretches throughout 26 cities.  In comparison, Audi currently has dealerships in only three Indian cities.

Quality is another issue Aulbur points to with particular pride.  The E-, C-, and S-Class vehicles sold in India are also built here. How does Mercedes’ quality in India stack up with quality in Germany?

How does the quality of a Mercedes-Benz built in India stack up to one built in Germany?  “We’re better,” insisted Aulbur.

“Our quality numbers are consistently higher than the cars built in Germany,” said Aulbur of the Mercedes factory in Pune.  He freely admits that a large part of the reason is the factory’s slow output.  “We can be more careful. Our yearly production is 2,000 to 2,500 units.  That’s probably one day’s production at our factory in Sindelfingen.”

Audi Goal: Double or Triple India Sales

Despite the miniscule size of India’s luxury market at the moment, Audi sees great potential for the future. Audi expects to double or triple sales in the next few years, vastly expand its distribution network and offer its full line in India by 2015.

“At the moment, the whole [Indian luxury car] market is around 4,000 cars,” said Ralph Weyler, member of the board and chief of marketing and sales for Audi AG in an interview with AutoObserver at the New Delhi Auto Expo.

In 2007, Audi sold a little more than 300 vehicles in India. With the arrival of the new A4 sedan this year, Weyler believes that Audi’s sales could double, or triple, over the next few years. 

“I have a sheet of paper in my office with countries of high relevance,” said Weyler.   “No other country with only 300 sales is on that list -- except for India. From a strategic standpoint, it’s very important.”

Weyler said that despite its current small sales volume, India is still very much a part of Audi’s goal of selling 1.5 million vehicles by 2015 in total.

At the New Delhi Auto Expo Wednesday, Audi unveiled the A4, which goes on sale this year. By 2015, Audi will be selling nearly its entire product line in India.

The challenge, as noted in the interview with Weyler, is the distribution channel in India. Weyler said Audi is expanding its network of three dealerships to 10 by the end of 2008. 

Tuning the cars to meet Indian market demands is also something Audi has learned during its initial three years here in India. Weyler said many Audi A4 owners are driven by chauffeurs. Therefore, there is a unique demand for more rear seat entertainment options, stronger air-conditioning units with rear controls and greater rear legroom. Audi also must tune suspensions handle India’s less developed roads.

Weyler also admits that the image of Audi in India needs to be established, though not via traditional mass media. Instead, soft marketing techniques – such as endorsements from Bollywood stars or Indian cricket players – create buzz about the Audi brand and, said Weyler, project an image of Audi as being a luxury car for more youthful and dynamic buyers.

BMW: Assessing Small-Car Production

As reported in the Economic Times here, BMW India confirmed at the New Delhi Auto Expo that it is conducting a feasibility of selling a small luxury car in India, with results expected in a few months.

"We have not decided on our plans for small cars in India... but are conducting a study to analyze the market,” BMW India President Peter Kronschnabl was quoted by the paper as saying. He added that importing a small luxury car to India would be expensive and the subsequent higher price might not work in the market.

Still, Kronschnabl said BMW is upbeat about the India market. He noted that India's total car sales are growing at about 16% a year but luxury sales are soaring at a rate of 50% a year. BMW expects luxury sales to hit 4,500 in 2008, from 3,500 in 2007, by its count.

BMW is boosting its investments in India, targeting the top position in India's luxury market over the next three to five years. BMW builds with 3- and 5-Series models at its Chennai plant, with, Kronschnabl saying, no plans to export them from India. BMW does, however, plan to hike the number of dealers to 12 by 2009. Its ninth dealership just opened. BMW also is expanding its international purchasing office in India for parts sourcing.

At the same time, with performance hotter than the spiciest lamb vindaloo, BMW’s high performance M Cars are set to come roaring into India.  Speaking at the New Delhi Auto Expo, Peter Kronschnabl, president of BMW India, said that the German luxury manufacturer would also introduce the BMW Individual program for the BMW 7 Series and 6 Series, along with the BMW X5 4.8i sport-utility vehicle.

The M3 Coupe, M5 sedan, M6 coupe and convertible are all available for sale in India beginning later this month, as are the 7 Series Individual, 6 Series Individual and X5 4.8i.  Like its cross-town rivals at Mercedes-Benz and Audi, BMW is rapidly expanding its product range in India to meet the country’s rapidly growing demand for luxury cars.

For the moment, this market remains extremely small.  The Indian luxury vehicle segment is likely to account for only 4,000 to 5,000 sales for all of 2008.  Last year, BMW sold 1,387 vehicles in India – though BMW points out that its sales estimates were for only 1,000 sales in 2007.

BMW has recently expanded the production capacity of its plant in Chennai from 1,700 units to 3,000 units per year.  All Indian market BMW 3-Series and 5-Series sedans (with the exception of M Cars) are now produced at this facility.  BMW is also expanding its dealership presence across the country.  As of now, there are only nine BMW dealerships throughout India.  By the end of this year, BMW says that number will increase to an even dozen, with new dealerships slated for Cochin, Ahmedabad, and Kolkatta.

BMW has recently expanded the production capacity of its plant y the end of this year, BMW says that number will increase to an even dozen, with new dealerships slated for Cochin, Ahmedabad, and Kolkatta.

Measured Optimism

Indeed, German luxury makers note the great potential of the India luxury market, but the overall attitude is one of carefully measured optimism, as much groundwork needs to be done to capitalize on the market’s potential.

Still, the impression left by the German luxury makers with a presence at the New Delhi Auto Expo is that -- for now, at least -- there is room for everyone in the Indian luxury vehicle marketplace. 

Photos by Nick Kurczewski
1- An Audi and Mercedes-Benz stand side by side outside of the New Delhi Auto Expo.
2 - India's media covers the Mercedes-Benz press conference at the New Delhi Auto Expo.
3 - Dr. Wilfried Aulbur, managing director and CEO of Daimler India, poses for photographers at Mercedes-Benz's press conference at the New Delhi Auto Expo.

Nick Kurczewski is a Paris-based correspondent for AutoObserver covering the New Delhi Auto Expo.

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