In an interview with FE’s Vikram Chaudhary, Martin Schwenk, MD & CEO, Mercedes-Benz India adds that while China’s development levels are far higher, lower taxes on luxury cars also play a role in market growth.
While China’s passenger vehicle market is almost 10 times India’s, its luxury car market could be 100 times bigger. “In India, the luxury car market has 1% penetration, but in China it is over 10%. A back-of-the-envelope calculation shows the latter’s market size could be 100 times India’s,” says Martin Schwenk, MD & CEO, Mercedes-Benz India. In an interview with FE’s Vikram Chaudhary, he adds that while China’s development levels are far higher, lower taxes on luxury cars also play a role in market growth. He also explains the rationale behind locally producing niche models such as AMG and S-Class.
Excerpts:
This year’s Union Budget focused a lot on building physical infrastructure. This is good news for carmakers, isn’t it?
Of course, the focus on infrastructure is really needed; over the years, we have seen not just intent, but also progress (on building infrastructure). This indirectly benefits carmakers.
But do luxury carmakers expect lower taxes every year, in the Budget?
At Mercedes-Benz India, I would say we don’t expect, we ask for it.
So, do you feel disappointed when the government doesn’t lower taxes?
No, because we don’t expect it (laughs).
What should be the right taxation structure for luxury cars?
My simple ask is, why discriminate in terms of the length of a car? A car shorter than 4 metres is taxed differently compared to one that is longer, and then you add cess on the latter—the effective tax goes up from 28% to 45-50%. In a good year, we sell 15,000 cars across 12 models; we should be able to sell 30,000 cars with one model. Lower taxes can lead to more sales, more sales lead to more production, more production means more localisation, and that also means more exports.
What is the rationale behind producing niche models such as Maybach, S-Class, AMG and EQS in India?
Because we think we are at a threshold where it makes sense to assemble even these niche models in India; this way, we are able to find more affordable price points for Indian customers.
What is the highest localisation level achieved by Mercedes-Benz India?
We are at about 40% localisation levels across our models. It varies from model to model and a car’s lifecycle; for instance, if we start localisation of the C-Class in a particular year, next year it increases, and then the year after it increases more.
What is the average age of a Mercedes-Benz India customer?
It is far lower than in more mature markets. For example, the average age of the S-Class buyer in India is just 38 years (the S-Class is an expensive car, starting at Rs 1.59 crore, ex-showroom). There is a decent size young crowd that has the buying power and the interest. Because we have a younger customer base, we also need to bring in a lot of technology on the dashboard for such customers, and that technology percolates down to more affordable cars and indirectly to the mass market segment.
Last year you started Retail of the Future (selling cars directly to end-customers). Is it working well?
The customer gets better choice. For example, earlier, if a customer wanted, say, a red C-Class at a dealership in Delhi, and the dealer only had the white C-Class, she either had to wait or search at other dealerships. Now, the same dealership can check if there is a red C-Class in the national inventory, and if a couple of these cars are found, say, in Pune, the same can be shipped to Delhi for the customer. Instead of having to choose from 20-odd cars at a dealership, she can choose from hundreds of cars. It has helped us better manage customer demand and, therefore, better manage inventory.
Have dealers benefited?
They are now called franchise partners. Earlier a dealer used to buy the inventory from us, and then he had to sell the car to the end-customer. This added a lot to fixed costs. Now, cars owned by Mercedes-Benz India are parked at dealerships and sold from there. This has reduced their fixed costs and, more importantly, risk.
Is the semiconductor shortage crisis behind us?
Not at all; to add to that is the container shortage and the overall supply situation will remain a challenge for the better part of this year. But we have learnt to manage all this to an extent.
Will your sales this year touch the peak of 15,538 units you did in 2018?
It depends again on the semiconductor shortage. But I must say the demand is robust, and if there weren’t supply challenges we could have made it to that number or get very near.
Does the Ukraine attack impact India operations?
The Ukraine crisis impacts me personally because I am a European and what is going on there is outrageous; it threatens all of us, our freedom. From a business perspective, it’s hard to assess at this point in time, it’s anybody’s guess.
How can carmakers such as Mercedes-Benz India contribute to India’s net-zero goals?
This year we will have 100% green energy at our manufacturing plant in Chakan, Pune. On top of that, globally we have the Ambition 2039 (making our cars carbon neutral by 2039), and so we will be well ahead of India’s targets. In addition, even now 85% components of our cars are recyclable and we will continue working in this area.
