Mercedes-Benz India: In the fast lane

There is an unwritten but sacrosanct rule on how new movies starring the badshahs of Bollywood are released. The managers of the superstar Khans—Shah Rukh, Salman, and Aamir—see to it their movies rarely hit theatres on the same day or even a couple of weeks apart. This ensures that each new film can run on maximum screens, raking in big bucks at the box office for a few weekends. That way, producers recover most of their costs for the usually high-budget films and the superstar continues to rule the roost.

Such an arrangement, it seems, also exists among the famous trinity of German automakers, though maybe not by design. Big new car launches of Mercedes-Benz, BMW, and Audi rarely coincide. Globally, Mercedes chose to refresh its product line in 2013, some five years after Audi launched its flagship A8 and around two years after BMW started introducing its new models. That year, Mercedes posted one of its best business performances in recent times.

The global story also seems to be playing out in India, where these carmakers sold a little more than 30,000 units in 2017. Between 2015 and 2017, Mercedes practically had a free run in India as BMW launched its new 5 Series last year and Audi will roll out its updated A8 only next year. Mercedes is still way ahead in the race, but as the competition steps up its game for the small but rapidly growing Indian luxury car market, the German carmaker is firing on all cylinders to maintain its lead. It has shed its image of being a fuddy-duddy carmaker, without the flashy elegance of its German rivals. And it is now whacking its competition at every end of the luxury car spectrum: SUVs, sports cars, and a specially designed long-wheelbase sedan

India head Roland Folger is leaving nothing to chance. Since he took charge in 2015, Mercedes has launched new models, created new dealerships, fixed its service network and invigorated its employees to take on rivals BMW and Audi, who have also begun adding to their portfolio. Folger, who has done long stints in emerging markets such as Thailand and Malaysia, says his India experience has been the most exciting. The Indian market, he explains, poses challenges one won’t see to such a degree in other places; for example, the sheer size and the “multi-ethnic” approach. “I never tire to explain to Germany it’s not accents; it’s 29 different languages in as many states,” he says.

But will Folger’s focus on India help Mercedes maintain numero uno status? Auto experts believe it can. “This time around, it will be tough for BMW or Audi to beat Mercedes as it has re-positioned itself as a more fashionable car, even among the youth. And the lead is already so strong,” says Hormazd Sorabjee, editor of Autocar India, an automotive magazine.

Mercedes certainly can’t afford to drop the ball. Until 2015, Mercedes, Audi, and BMW were neck and neck in terms of annual sales volumes in India, until Mercedes stepped on the gas to establish a clear lead. All three now have their eyes trained on the Indian market where luxury cars sales grew at an average 12-13% in the first six months of this year.

India’s luxury car leaderboard for 2017, too, mirrors the global trend. That year, Mercedes sold 2.3 million cars worldwide, growing at 9.9%. BMW came in second with 2 million cars, growing at 4.2%; Audi, with 1.88 million cars and growth of 0.6%, was third. This trend was witnessed in the U.S. market as well, where Mercedes sold 375,300 cars in 2017.

Mercedes is already no. 1 in the luxury segment in India and has an extremely strong lead. So what else is there left to do? “It is a dangerous thought,” says Folger, managing director and CEO of India operations.

We are at the sprawling Mercedes factory in Chakan, some 30 km from Pune, and it’s a pleasant, not-so-hot afternoon. Folger and I are having rice with some oily chana masala and papad for lunch at the staff canteen. His three-year stint in India—an extremely busy one—is coming to an end soon; but for the moment he is concentrating on the chana masala.

While the 59-year-old Mercedes veteran with over three decades of experience savours his meal, I look back at his happening stint. He was in the thick of things when the government banned large diesel vehicles in the National Capital Region. As part of a vehicle makers’ forum, he was also quite vocal against the government’s proposal to make India an electric vehicles-only market by 2030. Soon, he had another challenge on his hands: in late 2016, demonetisation hit sales of Mercedes hard, as showroom footfall dropped 60%. Amidst all this, he managed to launch more than 30 new models in the country, including a long-wheelbase version of their flagship E-Class, which required some investment to be made exclusively for the Indian market. And in a country where owning a Mercedes is a symbol that you have arrived, the firm’s vast portfolio has helped it cater to customers in every age group.

But Folger wanted to beat the competition summarily. Thus he also parleyed with the parent to bring its latest engine to adhere to Bharat Stage (BS)-VI emission norms, even though fuel with only BS-IV specifications is currently available in the country. “The luxury car market in India, at best, has had a stunted growth at 1% of the overall car market compared to 3-4% in emerging countries,” says Rakesh Batra, partner and national leader automotive sector, at consulting firm EY. In that light, the commitment of Mercedes “definitely shows a special interest in the country”, he adds.

The concessions Folger got from the parent were no one-off event. Mercedes-Benz—which posted revenue of ¤94.7 billion in 2017—is part of the Daimler group, whose ties with India go back to 1954. That’s when the then DaimlerBenz took a 10% stake in TELCO (now Tata Motors) to become its technology partner and produce Benz trucks at its Pune factory. Later, when Mercedes-Benz set up a wholly owned subsidiary in India to produce cars, it initially did so at the Tata factory in Pune. Then, Daimler sold its stakes in Tata and Bajaj Tempo (which it had inherited after a global takeover in the 1970s) and set up its own truck company in India. To that effect, Mercedes has been more involved with India than the other German rivals. This is evident from the fact that it always sent highly experienced managers like Folger and his immediate predecessor, Eberhard Kern, to helm India operations.

After his hearty lunch, Folger admits Mercedes lost the top spot because of its complacence—for long it had been the sole luxury carmaker in India and didn’t anticipate that rivals would bring in more updated and stylish products. Realisation dawned around 2013, when globally the company started completely overhauling its design language to a more contemporary one. This particularly helped in India where the average Mercedes customer is aged 43-44 years, while in other markets the average age is around 50

If the global changes helped re-position the products, Folger also took a cold hard look at some industry practices. First, he got more and more models to be made at the Indian factory—which has scaled up to produce nine models, compared with just three a few years ago. In fact, India has become the only location in the world outside Germany to manufacture the top-end Mercedes-Maybach sedan—which has a lot of fans among the captains of corporate India.

Folger also broke with another practice. Thus far, Mercedes appointed a maximum of two dealers in a city—even in metros such as Mumbai and Delhi. The reasoning was that it was better to have two dealers who were happy with their high volumes, rather than spread the spoils thin. The India head added a third dealership in these big markets. “An additional dealer may not be so important during the sales process but when customers enter the ownership phase and have to get their vehicles to service on a regular basis, a closer dealer saves a lot of time,” he says.

In the normal course, the march of Mercedes in the local market would have been par for the course—just another successful company expanding its investments when the times are good. But what makes it stand out is because its competitors—BMW and Audi—are just about getting their house in order. Says Jatin Ahuja, founder and managing director of Big Boy Toyz, one of the biggest dealers of second-hand luxury cars in India: “For nearly two years, Mercedes virtually ran without much competition as they had flooded the market with several new products at every price point.”

Just when Mercedes became No.1 in the Indian market, Audi was losing market share as it had few new products. And parent Volkswagen’s Dieselgate scandal also played on its overall product and management strategy. Audi started discounting its products and pushing its dealers hard—a strategy which caused a few key dealers in Mumbai and Delhi to fold up in the recent past. BMW, which was also caught in the discounting game, has just about got ready to do battle. But Mercedes can’t be complacent. “BMW is already back in action and Audi is in a quick corrective mode; and it won’t be long before Mercedes starts feeling the heat again,” says Sorabjee.

But for now, it’s still a Mercedes show. And for Folger, it would be mission accomplished when he hands over the baton to Martin Schwenk in the coming months.

(The story was originally published in the October 2018 issue of the magazine)