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Mercedes-Benz ‘cautiously optimistic’ about India sales

Abhishek Law Kolkata | Updated on March 06, 2019 Published on March 06, 2019

Martin Schwenk, Managing Director & CEO, Mercedes-Benz India   -  Debasish Bhaduri

German luxury car-maker plans to launch 10 models this year

Mercedes-Benz India remains “cautiously optimistic” about sales growth here in 2019; especially this being an election year.

According to Martin Schwenk, Managing Director and CEO, Mercedes-Benz India, the January to June period “are not the strongest months” in terms of sales. On the other hand, the second half could lead to “some growth”.

“Historically, election years have given us growth. But that has happened after the elections,” he told BusinessLine.

Mercedes-Benz accounts for nearly 40 per cent of the luxury car sales in India.

Election year

The German luxury car maker had sold 15,538 vehicles in India 2018 with growth being in the range of 1.4 per cent on a year-on-year basis. It had launched 12 models last year and is planning to launch 10 this year.

“We are cautiously optimistic that we can top that (2018 sales). But, we don’t know right now. At the moment, we are in pre-election mode and historically these are not the strongest months. The second half is expected to see quite some growth happening,” Schwenk said.

A typical election year phenomenon is delayed purchase by customers. This means, a customer could, despite deciding to buy a car, postpone it by a few months. So a sales that otherwise would have happened in first half of 2019 is delayed.

“Before elections, people are are hesitant to buy. They have already make a decision (to buy). But, they might not purchase. We have seen that in the past and see a similar trend now,” Schwenk pointed out, adding that this sort of phenomenon is an “industry element”.

Taxes, a roadblock

For Mercedes-Benz, the duty structures, however, remain an issue. The current tax structures make luxury cars (including Mercedes-Benz’s offerings) “more expensive”.

The present GST regime and other (taxes) are “also not conducive” to the rapid development of the luxury market.

“Ability is definitely a criterion, even in the luxury segment. Profitability, for the dealers and us, is not huge. Basically, it means there are some hurdles that come around that element of duty structures, import of parts and cars,” he said.

The GST rates (including cess), Schwenk said, could be as high as 48-50 per cent, which makes “every car expensive”. Then there is road tax. In case, the cars are imported, the duty varies between 60 per cent and 100 per cent.

“Our profitability (in India) is not as high as other markets,” he said, adding that Indian operations are profitable.

Localisation

According to him, the mid-to-long term perspectives in India are “quite great”. Beyond the immediate year, growth is foreseen for at least another two years.

There are a lot of areas that are “still not developed” and accordingly “more and more people will have the aspiration to drive a premium car”. No wonder then that Mercedes-Benz India will also look at tapping the Class-2 and Class-3 cities here.

Currently, nine of the 25 models that Mercedes-Benz has are made from its Chakan facility in Pune. However, there is no immediate plan to increase the localisation content.

“We need a reasonable volume for localising the product. And we do permanent assessment on every model on whether it is viable. In the end, it is a balance between cost of import and localisation.,” he pointed out.

Published on March 06, 2019
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