'If stock markets do well, so will luxury car sales'

By 2015-16, Mercedes Benz India expects to be ready with the entire range of luxury products in India. The company will launch the B class later this year, followed by A class (premium hatchback) next year. Not only this, it is also working on a new small sports utility vehicle (SUV) based on the A class platform, which will hit the Indian roads in 2014-15 and a right hand drive GLK in 2015-16 to compete with X1 and Q3.

Peter Honegg, MD & CEO, Mercedes-Benz India shared the company’s plans in an interview:

Mercedes has targeted a production of 100,000 units by 2020 from under 10,000 now. What kind of GDP or income growth is that goal predicated upon?
We do not fully link our sales to GDP growth. But what influences luxury carmakers like us more is inflation – and therefore interest rates -- because 60-70% of our sales are through financing. One more critical aspect is how the stock market does. Across the world, there is 100% correlation between the performance of stock markets and sales of luxury cars, though I have not specifically checked this out in India.

But the Indian stock market has been more or less where it is for the past 4 years, yet you have managed to do fairly well...
I would say when money is made in stock market, luxury cars get sold and if not, it affects sales. It is definitely the case in countries like Singapore and others.

What kind of customers are you targeting with your forthcoming B and A class cars?
Remember, we have a very high customer loyalty percentage – at about 80-85%. What we have changed in the last two years that we have also gone into corporate sales. This is our new target group. We have been doing this successfully. We are also trying to change our perception of being a younger brand with our AMG variants, and this we have been doing keeping in mind the B and the A class. There will be two types of customers, one the traditional guy buying B or A class for their daughters and sons and the other will be the self-made guy in his 20s or 30s, ready to upgrade.

Do you think the quality of roads and city infrastructure will stop India’s auto story?
No, I don’t think so. It is just one of the factors that can slow things down but it will not stop growth.  Take the example of China. That country first made roads and then got the cars. India has no roads but it makes the cars. Sure, clogging is true for many cities here. It takes me 1.5 hours to reach my office in Pune. So I work during my commute. In India, the car is becoming more and more of a home-office. If the Indian government decides to build roads of better quality and faster, obviously it will add to the overall growth of the industry. We don’t expect the Indian roads to be good in the next 10-15 years. So any improvement will be a huge upside for the industry.

You have an R&D unit in Bangalore. What is the most complicated part you have made there that’s used in Mercedes cars worldwide?
The seating system for the forthcoming A class was totally developed at our Bangalore facility. The facility also works a lot with our other global research units.

You have been In China and you have seen the massive luxury car boom there. Compared with that market, where do you think India is now?
At least 10 years behind. The Chinese market 10 years back was about 2-3 million annually of which 60,000-70,000 were luxury cars. In 2002, we were selling 5,000-6,000 units there. But the percentage of luxury cars sold in China 10 years back was twice what it is here in India. So even if the segment grows at the same pace, it will only be half the size of the Chinese pie. The total automobiles market will be on a par with China, sure. So essentially, India remains a small-car market.

There is a marked decline in the luxury car segment of late. What’s your outlook for the industry?
I don’t see a decline in the industry. The classical luxury segment (above `30 lakh), from my perspective, will be more or less stable. In our case, the S Class, E class, C class will be stable. Our M class will add to the volume. Whoever brings in a new product or a refresh will have an advantage. There is growth. Guys with new products will have more growth while others will see stable growth.

You think it was strategic mistake of not having a product in the X1 (BMW) category?
I don’t think there has been any strategic mistake. If there is one, it was made was in Stuttgart (the Mercedes headquarters) – which is, not to have a right-hand drive option in the GLK sports utility vehicle (which is the small SUV competing with the BMW X1 and Audi Q3). But then, when the SUV was conceived, India wasn’t doing as well and the UK was the only right-hand drive market for the product for us.