The world, including India, has to contend with the resurgence of inflation. Between September 2021 and April 2022, consumer food price inflation in India increased from 0.68% to 8.38% year-on-year. The Indian government is considering spending USD26 billion in the FY 2022 to shield consumers from the rising prices and fight multi-year high inflation. In view of the current economic state, expenditure on luxury items is expected to decrease; instead, the Indian luxury car segment reported a record number of bookings.
Inflation: Not a Problem
It appears that there is a disproportionate effect of inflation on the industry. The increase in the sale of luxury cars indicates that inflated prices rarely affect individuals with higher purchasing power. At a time when passenger car sale is decreasing - affected by supply disruption, high price of raw material and overall defensive market sentiment, the sale of luxury cars is increasing as high price tags are irrelevant for target customers in this segment. It is even more surprising that booking momentum remains strong despite the long wait and multiple rounds of price hikes — Car prices have increased at least by 1 lakh to as much as ₹20 lakhs.
Mercedes-Benz: Mercedes-Benz is expecting record sales in 2022. Even though some pricing adjustments were made, that has not affected the demand, according to the company. In Q1 2022, it sold over 4000 cars, and if the momentum continues, the company will likely end the year with a record annual sales in India.
BMW: Vikram Pawah, President, BMW Group India, believes that the luxury segment to a certain extent is not severely affected by mild inflationary changes. BMW reported growth of 25% in orders in Q1 2022, with order book being full for the coming quarter. The company has orders for 2000 units of BMW cars, and 200 units of MINI brand. There are almost 1500 waiting customers for BMW Motorrad bikes.
Audi & Lamborghini (Part of Volkswagen Group): According to Sharad Agarwal, Head of Lamborghini India, all Lamborghini models have a waiting time of between 10 and 12 months from order to delivery, and they are currently accepting orders only for FY2023. The company expects the market to reach the pre-COVID-19 level backed by consistent new order intake owing to positive market sentiment. Audi, on the other hand, is riding on the market sentiment. Boasting a good order bank for their top end cars such as Audi E-Tron, Audi Q8 and RS performance models, the company is planning to launch the Audi A8L in the future.
Outlook:
In spite of an increase in the sale of luxury cars in Q1 2022, the momentum may be lost in the quarters AHEAD. Given the unpredictability of the socio-economic environment, the pandemic and high taxes may ultimately affect consumer confidence. As is evident, demand is not really a problem when it comes to luxury cars, but supply constraints remain a major bottleneck, preventing faster growth. Persistent issues such as lockdowns, logistical hurdles or semiconductor shortages in the future are operational hurdles that could affect sales despite huge demand in the market.
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