BMW taps new customers in a bid to go past Mercedes

While BMW India has moved strongly to consolidate its position as a solid second in the luxury car game over the years, it’s yet to bounce back to the top slot, a position it held briefly around a decade ago. Catching up with Mercedes-Benz—which has the first-mover advantage and has been consistently firing on all cylinders: marketing, electric vehicles, and product strategy––will hinge on finding the right product segments to launch cars in, lowering the cost of ownership, stable leadership, and pushing the envelope on price.

BMW has got its act together on at least three pillars.

The recent launch of its 2021 BMW 3 Series Gran Limousine, essentially the long-wheelbase version of the 3 Series sedan, is an example of a clever product segment that can tap new buyers. It gives customers a car between the 3 series and the 5 series. Vikram Pawah, former country head and president of BMW India who’d left to run offshore markets for the Bavarian car company, is now back in the saddle. “We have at least 25 new products to launch this year and of which 15 will be from the BMW stable, five from MINI Cooper, and five from the two-wheeler Motorrade,” Pawah says over a video call as he prepares to come back to India to run the company here.

BMW’s Chennai plant has a single shift capacity of around 14,000 cars that can be scaled up to 20,000-plus in double shifts. It also assembles and manufactures around a dozen products there, including the 3 Series Gran Limousine.

Pawah says that last year was difficult as the market saw a total shutdown for four months. “Basically, we as BMW stood still so we didn’t have a decline but did gain segment share and our strategies to recoup our position for the future are built on product and customers,” he says. BMW’s sales for the year shrank by nearly 32% to around 6,100 cars while that of leader Mercedes-Benz declined by 43% to 7,893 units. Audi was worse off with a decline of over 60% to unit sales of some 1,700 cars, its lowest ever performance in a decade.

That sort of an environment will demand novel strategies.

Pawah adds, “We have to address the needs of the emerging Indian customer and the ones who chase experience and for them one has to find the right value proposition.” The company relaunched the X1, a compact SUV which hit the right spot. BMW India sees a significant contribution of over 50% coming from the locally produced sports utility vehicle (SUV) range including the X1, the X3, and the X5.

But pandemic aside what has retarded the market so much?

Kavan Mukhtyar, partner and leader-automotive, PwC India, says that there are two things at play. “People who can afford luxe vehicles may not go in for them because it’s too in-your-face or they don’t want to show that they have arrived,” he says. “So instead, they opt to spend ₹20 lakh or ₹30 lakh on a Toyota [Innova] Crysta or a Skoda Superb. This also explains consumer behaviour and India as a society, and it was the same in China until the number of rich grew to a point where it didn't matter what one drove.”

His view is that the next five years will see the luxury car market cross 100,000 units. But companies must know they have to localise for that. “Certain volume drivers will have to come down in price for them to push numbers,” Mukhtyar says.

What does Pawah think of the rising costs of the luxury car segment? “Inflation and taxation have both moved rapidly, especially after GST, leading to higher-priced cars. The proposition to the government that lowered taxes would mean higher exchequer revenue has been made multiple times, but the issue is not one of economics but of perception,” he says.

Luxury cars in India, even though they are bought mostly by tax-paying high-income individuals, are strangely seen as a sin. “That’s something that is true and really has to evolve soon if the industry is to grow, add jobs, and maybe even bring in more investment dollars in terms of manufacturing expansion and economic focus on India by large foreign carmakers,” says Hormazd Sorabjee, editor of Autocar India who is also a BMW aficionado and driver. “Luxury cars are no more sins than say a luxury apartment.”

In the meantime, BMW will do what it’s always done. “In our 100-year history we have created new segments. The X5, Gran Coupe and so on were created by us and that's our strength and is what we will do and what customers want,” Pawah says. He sees growth coming from cars such as the X1, X3, the 3 Gran Limousine and the 3 Series. “That's what customers look for, not stock standard products.”

Pawah does acknowledge that the speed-breaker comes in the absence of flexible regulations and laws to allow the market to open up and grow. “When that happens, it will be a win-win for everyone.”