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Luxury Car Market Struggles to Thrive in India, Shrinks by a Quarter in Six Months

Audi A3 sedan (Image: Audi)

Audi A3 sedan (Image: Audi)

At an average 35,000-40,000 units in the last three-four years or about 1.17% of the overall passenger vehicle market, the luxury automotive market is the smallest among the large economies.

A slowdown in the economic growth combined with uncertainty around the elections has caused India’s luxury car market to shrink by as much as a quarter in the first half of 2019. Leading manufacturers such as Mercedes-Benz and Audi, however, expect the situation to improve in the coming months.

A few other factors that might prove the contrary are risks such as continuing weakness in the economy, high GST rate and increased import costs that could cause major disruption in the near future. In addition to this, industry executives also suggest that the government’s move to increase the tax outgo of people earning more than Rs 2 crore could dampen the sentiment of their target customers.

Compared to the 20,000 units of luxury vehicles that were sold in the first half of last year, the Indian luxury market this year, recorded between 15,000 and 17,000 models, reports stated. In 2019, the luxury segment did worse than the rest of the country which is typically unusual in India as it typically outperforms the market.

The year began with a marginal decline in sales. However, the second quarter from April to June witnesses the worse drop with sales falling more than 30 per cent to 6,500 to 7,000 units. In light of the same Mercedes-Benz, last week, reported an 18 per cent decline in sales for the first half of 2019, blaming macroeconomic headwinds such as high-interest rates, rising import costs and a liquidity crunch that has affected the auto-loan market.

At an average 35,000-40,000 units in the last three-four years or about 1.17% of the overall passenger vehicle market, the luxury automotive market is the smallest among the large economies. It is to be noted that India houses more than 350,000 millionaires.

Major industry players suggest that the industry is looking at its biggest decline in a decade. A few of them are also worried about the impact of India’s shift from Bharat Stage IV emission standards to BS-VI, as the increased cost associated with the technology change could discourage more buyers.