Mercedes-Benz is betting on India’s nouveau riche to boost sales of luxury cars

The German Mercedes-Benz bets that a growing crop of young new millionaires will stimulate the demand for luxury cars in India, and sales will grow at a faster rate than that of cars in the mass market, said a top company official.

The growing number of “dollar millionaires” of India includes young entrepreneurs as well as high-earning professionals who appreciate the luxury element and technology of the cars, said Martin Schwenk, CEO of Mercedes-Benz India.

“The base is expanding and slowly moving beyond our traditional customers,” Schwenk told Reuters in a recent interview in the western industrial city of Pune, home of Mercedes’ India headquarters and manufacturing plant.

“In the future, we will see higher growth figures in the luxury segment than we see in the mass market,” he said, adding that the average age of buyers had also fallen below 40, from more than 45 previously.

However, the biggest obstacle to growth of global automakers is a shortage of semiconductors and logistical problems exacerbated by Russia’s invasion of Ukraine. For Mercedes India, this has led to an order backlog of 4,000 cars, Schwenk said.

India’s start-up frenzy and stock boom are creating a new breed of wealthy splurgers on luxury brands such as Rolex, Louis Vuitton and Gucci, the 2021 Hurun India Wealth Report showed.

The number of Indian households with a net worth of at least one million dollars grew by 11% in 2021 to 458,000 and is expected to increase by 30% over the next five years, the report said.

India is for the most part a small and cheap car market in which luxury models account for well over 1% of the total annual sales of around 3 million.

Mercedes is the best-selling luxury brand, with a market share of more than 40%, says car market data provider JATO Dynamics, and it competes with Audi, BMW and Tata Motors’ Jaguar Land Rover.

Sales in India rose more than 40% to 11,242 cars in 2021, coming from a low of 7,893 in the year 2020 hit by pandemic.

But Mercedes saw growth of 80% in top models such as the GLS, S-Class and GLS Maybach, all cars costing more than 10 million rupees ($ 131,337).

Schwenk said while the pandemic had driven some of this demand as more people “spent for their own pleasure”, India’s luxury car market showed potential for higher growth, a feature that has been lacking in recent times six to eight years.

To take advantage of the momentum, the company plans to launch 10 models in 2022, including its locally assembled electric sedan EQS.

While growth in India’s luxury and mass markets is not directly comparable, Mercedes’ high end models reflect the wealth of the nation, said Ravi Bhatia, President of India at JATO.

“The rich have become richer and some of them have finally upgraded their lifestyle,” Bhatia said.

JATO’s analysis also showed that Mercedes’ product mix and prices lead to a lower average weighted price of its cars, putting upgrades for the luxury segment within the reach of more customers, he added.

However, Mercedes’ sales in 2021 are even lower than its peak of more than 15,500 cars in 2018. Schwenk said sales could approach 2018 levels this year if there were no further supply chain disruptions due to COVID or geopolitical issues .

Reducing Indian taxes on luxury cars, which he said were among the highest in the world, would also help to grow the segment and benefit the car market.

(Reporting by Aditi Shah; Edited by Clarence Fernandez)