‘India is now on Stuttgart’s radar’

From being practically non-existent in the mid-1990s, the luxury car segment has come a long way in India.

The market for high-end models has been growing 40-45 per cent annually the last three years and is expected to touch 35,000 units this year. Though options are plenty, it is an all-German battle for pole position, with Mercedes Benz, BMW and Audi jostling for the lead slot.

Though Mercedes came in as early as 1995, and was for long comfortably the market leader, BMW, which arrived in 2007, upstaged it in 2010. Now, Audi too is making a bid for the top spot.

In an interview with Business Line , Mr Peter Honegg, Managing Director and CEO, Mercedes Benz India, admitted that the Indian luxury car market was indeed “a bone to really go after”. He spoke on the company’s plans in the days ahead.

Excerpts from the interview:

How important is the India market for the Group?

By 2020, Mercedes has a target to be No.1 in terms of units sold worldwide. India, which is expected to be the second largest market in the world by then, will play a major role in achieving this. I don’t know if it is because we have made more noise or whether they have got a wake-up call, but Stuttgart is now taking India seriously. Earlier, it was classified with ‘Rest of the World’, low down in the priority order. Now it is right on the radar, because they recognise its importance. This means more and more requirements from India will be taken into consideration. For instance, today, I estimate, less than 20 per cent of the cars worldwide are Right Hand Drive, and everybody except the Japanese — the US, Europe, Korea — focuses on LHD. Ten years on, because of India, we will have to have a RHD in nearly every product.

In March this year, we went to the board and, in principle, it agreed to empower us so we can take faster decisions based on the demands of the local market. I expect this will be finalised in the next 3-6 months.

So is an India-specific car on the cards?

No, we will not develop an India-specific car, but will try to customise a car to local needs. There are some things we know, some we don’t know yet. Here, 90 per cent of the cars are probably chauffeur-driven, so the rear seat is much more important that the front seat. Our work on driver-oriented cars is done, now we have to work on rear seat issues. We have to make an India strategy…it could be giving more gizmos in the A-Class, which is going to be more owner-driven, developing a swivel seat to help older people in the family to get out more easily, or maybe a screen on which the co-driver can see a movie, but the driver can see a picture of Ganesha. That’s a Honegg idea (laughs)!

Basically, earlier, all R&D was normally done by headquarters. Now, instead of going to Stuttgart, a process that could take months, we have the power to release it ourselves.

What are the new products you plan to launch over the next 12-18 months?

We will begin assembling the M-Class by the year end, while assembly of the B-Class will begin in a year’s time. The newest child on board will be the A-Class. Due sometime in 2013, I believe this will be a game-changer and we are betting big on it.

We are setting up new assembly lines for these forthcoming models which will double our existing capacity to 20,000 units per annum. We are also setting up a paint shop with similar capacity. By the time all this is done, in all, we will have invested Rs 650-700 crore at Chakan.

What are the biggest challenges you face in India?

The first biggest bottleneck is people. Today we have 70 touch points in 31 cities and expect to add 15-20 every year for the next few years. So we are talking about hiring 2,000 people in retail every year. A Mercedes service station is like a specialist doctor’s clinic, highly sophisticated. So the people also have to be educated and sophisticated. There is a big battle for finding the right people. The second challenge comes from the wide difference in customer behaviour across regions. In China, for instance, the progression of the four Cs — cash, credit card, condominium and car — is consistent and predictable everywhere in the country. Here, there are so many cultural and language differences, it is difficult to understand what customers want! Take advertising, for instance. Should it be in a regional language? Or in Hindi?

You are optimistic about the future of the luxury segment. What is that worries you?

The speed at which rules are changed is frightening. The Indian government is not consistent. There must be long-term, reliable laws to keep FDI alive. Each State has different rules and laws. That is also confusing.

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