India-China Fast Emerging as Battleground for BMW, Mercedes

BMW and Mercedes, the two premium car companies globally are looking for countries to saturate in a bid to become the number 1 premium car maker. India and China seem to be the likely targets

With 236,000 high net worth individuals (HNIs), India is home to the fourth largest population of millionaires in the Asia Pacific region, as per Asia Pacific 2016 Wealth Report. China, on the other hand, ranks second with 654,000 HNWIs, while Japan tops the list with 1.26 million HNIs, with net worth of over USD1 million. 

Thanks to a high savings rate, not only are disposable incomes in both the emerging economies rising  a noticeable change has been witnessed in the consumption patterns also. With provision of adequate facilities, this consumption will move towards luxury items, more specifically to branded luxury items. Countries like India and China don’t necessarily see luxury the same way as somebody in, say, USA. For the perceptive Indian owner, the brand-image of the product is as important as the product itself; we see a similar trend in China where people are happy to purchase generic products for day-to-day usage but gravitate towards European luxe labels such as Prada, Gucci etc. when purchasing luxury items.                                                                                                                                        

Enter BMW and Mercedes. Both companies satisfy the criteria of being dependable, European luxury brands that have high visibility and recall value and essentially are synonymous with style and good taste across the world. BMW is a behemoth in China, with sales of BMW and Mini vehicles achieving an 11.3% increase, with a total of 516,355 vehicles sold. This is the first time more than half a million BMWs and Minis were sold in China in a single year. By contrast, Mercedes-Benz sold 472,844 vehicles in the same time period, in China.

The battle between the top three premium car companies has reached a head where all three are now competing at the margins to mop up any excess demand, wherever it may exist. Global sales of the top 3 companies in 2016 were Mercedes-Benz with 2.23 million cars sold (up 11.3% from 2015), BMW with 2.04 million vehicles (up 5.2% from 2015) and Audi with 1.87 million (up 3.7%). With these narrowing margins, premium car companies are on the hunt for a large market to saturate and gain an edge on their rivals.

This is where India comes into play. There is strong potential in the Indian market, given that there has been a rise in prosperity but not a subsequent rise in premium vehicles sold, denoting a demand supply mismatch that needs to be filled by one company or another. For example, Mercedes-Benz grew over 32% in 2015-2016, selling 13,502 vehicles. While sales for FY2016 were flat, given issues such as demonetization and the Indian Supreme Court’s diesel ban, Mercedes reported its best ever quarterly sales in India at 3,650 units in Q1 2017. Given the low penetration rate of premium luxury cars in India and the scaling down of taxes on premium vehicles via the GST, it stands to reason that the Indian car market will become the next big playground after China, for Mercedes-Benz, BMW and Audi to compete in to get to the enviable position of ‘world’s number one luxury carmaker’.