One morning in October 2010, Aurangabad, known for its proximity to the famous Ajanta and Ellora caves, got to enjoy its moment in the sun. This drought-hit town made news, not for rains, but for 150 Mercedes-Benz deliveries on a single day!

Models delivered included the S, C and E Class cars besides SUVs — each costing ₹25 lakh to almost ₹1 crore.

It was perhaps the largest-ever single transaction for Mercedes since it entered the Indian market in the mid-90s. This event showcased the newly emerging potential for luxury car brands in India.

Fast forward to the present. India has indeed lived up to its reputation for its hunger for luxury cars. While growth in the domestic car industry has spiralled downward in the last two years, luxury cars-makers had a ball, with Audi, Mercedes and Jaguar Land Rover showing double-digit growth in sales volumes through 2013.

Together, these car makers, along with BMW, sold almost 30,000 cars in the country. The number is growing this year, too.

The rapidly increasing demand for premium cars is prompting auto makers to dream big for India. Volvo, currently a fringe player in the luxury cars segment, has set an ambitious target of achieving annual sales of 10,000 units by 2018.

This is ten times the 936 cars it sold in 2013. Mercedes is gearing for India to be one of its top 10 markets, according to its vision for 2024. In fact, the company has plans to bring the full range of its high-end AMG performance cars here, as enquiries are on the rise.

So what’s driving luxury car sales in India?

Rise of the neo-rich The demand for luxury cars is being driven by the same fuel that the private banking industry is thriving on — the growing population of the neo-rich.

Outside the big business owners and the traditionally rich, there are entrepreneurs, traders, land owners and professionals, both in the cities and smaller towns, whose wealth has burgeoned.

Many in the salaried class, too, move up the corporate ladder quickly. And more often than not, upgrades to a swish house and a swanky car are the first things that they aspire for. Car-makers are cashing in on this trend by reaching out to such customers. Audi and BMW, brands that came into India in 2006-07, now have dealerships in tier-2 and tier-3 cities such as Raipur, Ludhiana, Kanpur, Faridabad, Coimbatore, Surat and Bhubaneshwar.

Kumar Kandaswamy, Senior Director at Deloitte in India, who tracks the auto industry closely, talks of corporate purchases of these cars too.

Companies are increasingly offering luxury cars as part of the compensation package for top managers, he says.

These cars, registered in the name of the company, are offered for use by top executives.

Secondly, besides retention bonuses and stock options, these cars could be purchased by big corporates to reward high fliers. HCL Technologies, for example, was in the news in December 2013 for giving out about 50 A Class Mercs to its employees as a ‘performance incentive’. With the economy expected to pick up steam, this trend could also rev up luxury car sales going forward.

Aspirational buys But forget companies which can buy luxury cars by writing out a single cheque. There are countless others who aspire to own a luxury car but can’t pay the cash upfront.

Every luxury car-maker in India is trying to bridge this gap between thought and action for many aspirational buyers by providing in-house financing.

Audi, one of the largest selling brands in India, provides up to 90 per cent financing for your car through Audi Finance, with repayment options ranging from one-five years.

Jaguar has financing options titled ‘Jaguar Handshake’, ‘Jaguar Bespoke’ ‘Jaguar Independence’ and ‘Jaguar Privilege’ to help make the dream of driving an XF or an XJ, a reality.

To bring more customers into their fold, luxury car makers are also offering slightly more affordable models to reel in fence-sitters. For example, BMW has a 1 Series in the ₹20-30 lakh range, competing on the same scale as top-end models in India from other players, such as Toyota or Honda.

Similarly, Mercedes Benz A Class cars were a big hit in the Indian market last year.

Apart from expanding the customer base, this approach also helps build brand loyalty, making it easier for the car-maker to upgrade a 1 Series customer to a 3/5 Series buyer a few years later.

Competitive pricing That local assembly of CKD (completely knocked down) cars work out cheaper than import of CBUs (completely built units) is a well-known fact in this industry.

Thus, for local sales, car-makers are building more of their luxury brands locally to reduce costs. BMW has focused on local assembly at its Chennai plant since inception.

Models such as the 1,3,5 Series X1 and X3 are assembled here.

From 3,000 cars a year in 2007, the capacity was ramped up to 11,000 in 2013.

Thanks to their common parentage (Volkswagen) Audi’s A4, A6, Q3, Q5 and Q7 are assembled at the Skoda plant in Aurangabad. Higher demand is also prompting other players to assemble more models in India and improve localisation levels.

To reach its 2018 target, Volvo plans to assemble cars locally for the Indian market at an upcoming facility in Karnataka.

Force Motors, already assembling engines for Mercedes Benz, might do it for BMW now as well.

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