For Audi, luxury hatch fails the price-to-size perception test

You are the market leader now. How do you plan to stay there?
We are not surprised that we became the No. 1, but we were surprised we got there by a large margin. Basically, the last quarter went very well for us. This fiscal too, April and May have been relatively good, considering the competition, especially since Mercedes launched the A-Class. But they sold only 27 cars in May, so we are looking now at what’s going to happen in June. Personally, I don’t believe that the market is ready for a luxury hatchback — not in big numbers.

When you say that the market is not ready for cars like A-Class...
(interrupts) I said it’s not proven. There is still a big question mark.

…does it mean Audi will not introduce anything below Q3 for some time?
We have a different strategy, a top-down strategy. So start with an SUV, then a sedan and then may be consider a hatchback. So we thought we would consider the A3 sedan, which is getting launched in Europe this summer. So we will have Q3, then A3 sedan and then we might consider the A3 sportsback -- but more as a niche than a volume product.

When does the A3 get launched?
In 2014. In India people still have price-to-size perception. Looks at the (Mahindra) Boleros, (Tata) Safaris … if you are spending a certain amount, people want a certain size of car. Also, there are certain things different in India compared with Europe. In Europe, 90% people travel in the front seat. In India, a lot of people sit in the back. So space is definitely important, as is ground clearance, especially in Mumbai where there are speedbumps. The image of a car is related to its body type. You are sitting high on an SUV means you command more respect, you have more status. So these are the things which speak against a hatchback.

When did this uptrading (towards bigger, premium vehicles) start in India?
I think it was always there, but in very small doses. But now it’s increasing. People are image- conscious and then there is the upcoming middle class. People who have worked hard, who have a family disposable income of `50 lakh-plus. When you see your neighbour buying a luxury car, there is peer pressure, which is more in the north than in the west.

And in Gujarat more than Maharashtra. When I worked for another German brand 15 years ago, the luxury car was probably No 7 or 10 in a person’s shopping list. Now it’s No. 3,4,5 or 6 …. The car is becoming an important product to express your lifestyle. And that’s where we are benefiting.

Which geography has surprised you in terms of sales?
Where we are dominating is NCR (National Capital Region). We have 40% (market share) there. In best months, we have even touched 45%.

What’s the reason?
We have a very good dealer network. The second factor is the product. Punjabis love bling. People love those LED headlights we offer. It’s distinguishing. Audi is a younger, dynamic and sporty brand, which fits the north Indian lifestyle well. Also, Delhiites always want to be as cool or cooler than Mumbaiites. And the Bollywood factor has also helped (Audi had a nifty product placement in Race 2, where John Abraham zoomed around in an R8).

How do you see the luxury car industry growing over the next five years?
I think this year we will see 15-20% growth. We will also see luxury in new segments - like A Class and 1 Series … so we are adding growth. But if we take out the entry models, the industry might only grow probably by 10%. So additional growth will come from new segments.

Does the Rs 18-25 lakh price bracket excite Audi?
Yeah, there is volume there. But my sharpest pull is the Q3. Today we start at Rs 27.7 lakh. But if we could bring that to around the `25 lakh, I draw in those who intend to buy a Rs 20-22 lakh car — hatch or sedan. Cars like the (Chevy) Captiva, (Honda) CRV, (Renault) Koleos, (Mitsubishi) Outlander. That would mean someone considering spending Rs 18-19 lakh has an EMI in mind. For a fraction more of the EMI, he can buy a proper Audi.

When does the Q3 move to the Rs 25 lakh price bracket?
Probably in the second half of this year (when assembling starts here).

Has the number of first-time luxury car buyers been increasing?
About 70-80% of them are first-time luxury car buyers and only 20% jump across brands.
If you look at the segment where the A8, the 7 Series and the S Class are, that is pretty stable because it’s more or less the same set of people buying.

Then there are the young and dynamic luxury-car buyers, whom I consider the young global Indians. People who come back from the US or the UK after having studied abroad.

They were driving an Audi or BMW in the US, they know the brand is successful. A few decades back, people like Kalyani or Bajaj, returning from abroad still had to buy a small car in India. Why? Because their fathers may be having a Mercedes E Class or even below, so as a son you could not drive something bigger than your father. Now nobody cares. The son’s come back and says, “Okay, I take over the company.

A couple of crores is what I make annually. I hope dad you won’t mind me buying a nice house and a proper car”. Also, today’s father is more relaxed so kids have got a bit more taste of luxury. When I interviewed Baba Kalyani for the Audi Magazine, I asked what luxury cars did he grow up with. He said basically nothing. There were just few imported cars or may be a neighbour had an old Jaguar. But that was it. “We had Ambassadors, Padminis, Impalas”. He said, “I was bold and I built for myself my own convertible and did a little experimenting”. But Adi Godrej was really into luxury cars for a long time. There were very few who imported cars paying 300-400% duties. The current generation grows up with global media so adoption of trends is also much faster.

How many R8s have you sold in India?
Around 100 since 2009. In that segment, we are the market leader.

And the Jaguar F-Type is coming…
In that segment, every car is actually a great car. Buying is only a matter of personal preference.

Does the stock market/economy doing well  help you?
There are four slabs of consumers – the top ones, then the second tier comprising promoters of businesses, small, medium and larger corporations and then there are the professionals — lawyers and doctors. We are also seeing more and more salaried customers — that’s a new segment. So if you look at these four slabs, each slab has its own dynamics. Each segment reacts differently regionally. So you need to be very savvy, as to what works where. You cannot copy paste the marketing approach in Punjab to Kerala. I always joke that the Punjabi always says he has Rs 100 but will tell everybody he spends Rs 1,000. A Maharashtrian might have Rs 10,000 but will spend only Rs 100.

While in the south, people are very rational, people buy luxury brands but they have a logical explanation on why they bought. (He gestures to imply the head rules over the gut.)

That’s the German way of doing it...
Yeah, south Indians are a bit like Germans and north Indians more like Italians….

Do you think India’s auto story will be brought to a halt by infrastructure?
Infrastructure has been a stumbling block for the past 20 years. Back in 1999-2000, China had about 1,000-2,000 km of highways, which is probably what we have today. Now, China has 85,000-95,000 km of national highways. Here we talk about the Bandra-Worli Sea Link as if it’s the ninth wonder in the world.

And it’s just 4 km…
Any medium-sized lake in Sweden will have such infrastructure. The decisiveness to build infrastructure is still not there in the political class in India.

Does selling cars become difficult in such a scenario?
The thing is, whenever infrastructure gets better, demand also catches up.

What about discounts?
Discounting does not get you large numbers. Also, it can be easily copied. It destroys the brand.

So discounts are not happening?
Discounts are happening, that’s the nature of the trade. You go to any luxury car brand anywhere. There is generally oversupply and under-demand. So the dealer will always try to sweeten the deal. He will give free insurance, free service. There’s always something. And Indians love to make deals. You would always advise your friends, “Look, I bought this car but I made a smart deal.’’ People want to look like smart shoppers. It’s like I know how to get the best deal out. It’s a mentality we can’t break. I call it “carpet trading mentality”.

Where do you stand on free trade agreement  (FTA) with Europe?
I think we need to get much more clarity on FTA. Honestly, India and Europe are not at a stage where we are gonna sign something. We are still at a negotiation stage. But if we don’t sign now, for the next 2-3 years, the European Commission will be busy negotiating an FTA with North America. So the window will be limited. Then there are enough people who don’t want the FTA all.