Luxury carmakers have a new market in sight: India's smaller towns and cities

For luxury car brands, small is big. Companies like BMW, Mercedes-Benz, Lamborghini, and others are eyeing smaller towns and cities like Ludhiana, Kanpur, Surat, etc. to drive up their volume growth in India. By selling an average number of 40,000 units annually, luxury carmakers make up less than 2 per cent of the entire passenger vehicle market in the country-as compared to 13 per cent penetration in China and 10 per cent in the US. They are now hoping to drive up sales by penetrating deeper into the Tier-II and Tier-III markets in the country. According to top luxury players in India, non-metro cities could drive significant sales volumes owing to an emergence of young entrepreneurs from these places.

Italian supercar maker Lamborghini, for example, expects India to be among its top 15 markets in the next two to three years. India was the first market to get the Huracan Evo after its global launch and was also among the top five markets for the company to launch the Urus-the company's first Sport Utility Vehicle (SUV). "In the last four years, we have moved from a single-digit contribution in our volumes from the Tier-I, Tier-II cities in India to 25 per cent of our volumes coming from these cities. There are certain trends that tell us where the future will lie. In the last four-five years, the demand was largely coming from third and fourth-generation business entrepreneurs, but today we're seeing more and more first and second-generation entrepreneurs and start-up founders buying a Lambo," Sharad Agarwal, Head, Lamborghini India, told BusinessToday.

The supercar maker, which recently crossed its 300-sales mark in India, argued that its top non-metro towns and cities it is banking on at the moment are Ludhiana, Chandigarh, Jaipur, Indore, Kanpur, Guwahati, Bhubaneshwar, and Surat. Agarwal added that five years back, the demand was largely concentrated in the metro cities. "But now the demand is coming from the length and breadth of this country. We will see a better and a more consistent growth in years to come," he said.

While India is outside Lamborghini's top 10 markets, Agarwal expects smaller towns and cities to drive up demand like never before. "India is not among our top 10 markets in the world, [and] despite that it is one of the strategic markets for us to drive up future growth in volumes," he said.

Another Italian supercar maker, Maserati, too, swears by India's growth potential. "India is an extremely diverse country. The affluence and wide reach of India's metros cannot be ignored for growing top lines. Having said that, we are seeing a new wave of demand coming from non-metro and Tier 2 cities as well, like Lucknow, Kanpur, Indore, Bhopal, Mangalore, Chandigarh, Goa, and many more. These cities have the potential to continue providing sizable opportunities in the future too and are proving to be catalysts in spurring demand for super luxury brands," Bojan Jankulovski, Head of Operations, Maserati India said.

Maserati has traditionally enjoyed steady patronage in the metros but the company is now witnessing a demand for its product offerings in the Tier-II & Tier-III Indian market. "An evolved customer base, coupled with higher disposable income, is leading to growth of these emerging markets. Over the past year, Maserati has witnessed an increased demand from these Tier 2 cities. With the current range of products that we offer, we are very optimistic about the Indian market," he said.

Part of the reason for this surge, according to Maserati, is a growing affluent segment and the increase in the standard of living and evolving consumers who are now more focused than ever before on personality and lifestyle choices. "The challenge that lies at a carmaker's level is to understand this developing market segment and offer a product line-up to suit the evolving palates of consumers. As a super luxury brand, distinguishing ourselves is imperative. For us at Maserati, we believe it's the exclusivity and craftsmanship that sets us apart," Jankulovski added.

India's luxury car market is expected to grow at a CAGR of approximately 15-20 per cent over the next 5 years. India's largest luxury car player, Mercedes-Benz said that they have seen a consistent growth after the deadly second wave of the Covid-19 pandemic in India. "The economy was very resilient because the businesses had a very good view of how to deal with the crisis. A lot of our customers are entrepreneurs, builders, etc. and they run successful businesses. All these things combined created a positive environment for domestic travel with cars," said Martin Schwenk, MD and CEO, Mercedes-Benz India.

Schwenk, however, is of the opinion that even though there is a demand from smaller towns and cities, the company needs to sell more cars in order to drive more penetration and localisation. "We try to cover smaller towns but we need to sell more cars to sustain a dealership. It's a very low number today. If you don't have reasonable number of cars to sell per month, you can't have dealerships in that town or city. Online sales will help but we cannot expand our physical presence much more than [what] we have today," he said.

Carmakers point out that the luxury industry today does not represent the true potential of the market due to heavy tax and duty structures that India possesses, thereby making it one of the most expensive markets for these brands to penetrate. In a quest to find a solution, their best bet for now is to attract more customers in smaller towns and cities, especially with their entry-level offerings.

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