Joe King: Youth driving luxury car demand
Jul 04 2014
Interview: Joe King, Head, Audi India
Passenger car sales in India continue to be sluggish for the second straight year but the luxury car market is growing year-on-year. Volumes have increased from about 28,000 units in FY13 to 35,000 in FY14. What is driving this growth in the country, the third largest economy in Asia?
It’s not difficult to analyse the reasons for this growth in India and the optimism attached to it if we look at the way the number of high net worth individuals (HNIs) is growing in India. According to Forbes, India’s billionaires list rose to an all-time high of 56 in March 2014. Over the next five years, ultra high net worth households (ultra HNHs) in the country are expected to more than triple to over 329,000 households according to Crisil Kotak Top of the Pyramid report 2013.
The increasing demand for luxury cars is pretty evident if we look at the above numbers. While the overall automobile industry was witnessing de-growth last year, the luxury car segment charted 7 per cent growth and we showed 11 per cent growth, while the general economic conditions were showing less than encouraging signs. For the next three years, this luxury segment growth is expected to continue at 15 per cent upwards, noted a report by the Confederation of Indian Industry and market research firm IMRB International recently.
What’s interesting in India is also its young population. The average age of an Indian millionaire has come down to 35-40 years from the earlier average of 50 years. The Indian luxury car market has emerged as one of the youngest in the world with respect to the average age of the car buyer. An increasing number of young entrepreneurs and professionals from various fields are buying luxury cars and have played a critical role in keeping the average age of the luxury car consumer to around 35 years. Globally, it would be 43-45 years. This particular trend works to the benefit of automakers to produce aspirational car models that younger buyers want to own and make a statement of their success. If we look at the Audi ecosystem, India is our youngest market.
The emergence of a more progressive, discerning class of people from smaller cities who understand, value and aspire to own a luxury brand like Audi, are significantly contributing to the transformation of the luxury landscape in India.
Which are the most successful luxury models in India? Out of compact, sedan, sports utility vehicles (SUVs), performance cars, which segment is in demand and growing the market?
Driving choices of people have changed from what they were 10 years ago. The market has undergone a shift not only with respect to dynamics and increased competition but also consumer preferences. Even though, in the past two years, the overall car sales saw a lacklustre performance in India, the luxury SUV segment has continued to rise.
Amidst several factors fuelling the spurt of growth for SUVs, the growing base of young buyers in India tops the list. India is a land of Quattro and given this wide diversity in topography, our Audi Q range SUV prove to be apt vehicles for all kinds of terrains. There is also a growing demand for luxury SUVs in tier II and III cities in India.
The Audi Q range has been a winner so far and desirability of our SUVs among enthusiasts has been on a rise. The Audi Q range has strengthened our product portfolio and contributed significantly to our sales. We are the market leaders in the luxury SUV segment in India.
However, Audi has also registered a strong growth in the luxury sedan segment with our A range, further delighting customers with their design and dynamic performance. The newly launched Audi A8L – which offers more than 100 customisation options, has helped us further consolidate our position in this segment.
The recent launch of Audi RS 7 Sportback – the most powerful car in the Audi fleet along with the Audi RS 5 Coupé, Audi R8 V10 plus, Audi R8 V10 and Audi R8 Spyder – makes us the market leader in the super sportscar segment with fascinating looks and powerful technology.
Many international luxury car makers in India have started local assembly and sourcing parts, including engines from within India to reduce pricing upto Rs 10-30 lakh range per model. Is this strategy effective and working?
Last year, over 90 per cent of our total volume was produced locally and by the time the Audi A3 comes on board, that percentage will grow and the volume will grow as well. Currently, Audi A4, Audi A6, Audi Q5, Audi Q7, and the Audi Q3 are being produced in India.
Your two major competitors have recently come up with relatively low-priced products such as compact luxury cars. Should luxury brands focus on such strategy for growth in a country like India to increase volumes and profitability? Do you plan to introduce the A3 hatchback and the announced Q1 SUV, apart from the A3 sedan?
Our understanding is that the Indian customer is a value-sensitive customer and not a price-sensitive one. Customer purchases depend on what suits their needs; it is the overall product package and value proportion that usually comes into play while buying a luxury car.
Hence, our customers prefer an Audi because they can connect with our brand values of progressiveness, sportiness and sophistication. Our growing number of younger customers prove that if an Indian buyer sees value by way of features and performance, he/she is willing to pay a higher price for it.
We have several examples of Audi Q3 and Audi A4 customers who have jumped price bands to buy our luxury cars.
At this point of time, the Audi A3 sits in the same segment, sits in the same category and we feel that the sedan version is more of what the consumer is looking for, than a hatch version.
Obviously, we also have the option of the hatchback or the sportback version and we continue to assess with every product and every opportunity that we make sure there is a right business case behind, and then we make a decision on the basis of what the consumer is after.
We are not just about bringing every product that Audi has and filling the country with cars that people don’t want. We want to make sure the right cars with the right specifications to reach the consumers.
In line with our top-down strategy, we will be launching the next big Audi – the Audi A3 Sedan – soon. This will open a new customer segment. Ideally, the Audi A3 Sedan will be a segment up from the compact luxury hatchback. It will offer tremendous value for the customer with high-end features, which will be a segment first.
What are the challenges and difficulties facing the luxury car makers in India?
Factors like global economic slowdown, rising fuel prices, depreciating rupee, varying registration taxes in different states, reduction in retail loans and speculation on higher duty on diesel cars, together have had a negative impact on the automobile industry. Though the economy is not buoyant as it has been in the last years, but in this luxury segment, it is still positive.