Introduction

In recent years, the luxury car industry in India has witnessed significant growth, driven by the increasing purchasing power of consumers and a rising aspiration for high-end vehicles. However, according to a senior official from Mercedes-Benz India, there is a factor that is hindering the sales potential of luxury cars in the country – the savings habits of Indian consumers. In this article, we will explore the insights shared by the Mercedes-Benz official and delve into the impact of savings habits on the luxury car market in India.

The Role of SIP Investments

SIP investments, or Systematic Investment Plans, have emerged as a popular investment option among Indian consumers. These plans allow individuals to invest small amounts regularly in mutual funds, providing them with a disciplined approach to wealth creation. However, according to the Mercedes-Benz official, SIP investments are also acting as competitors to the luxury car industry in India.

The official points out that if consumers are able to break the cycle of SIP investments and divert those funds towards luxury cars, the industry could experience exponential growth. This observation reflects the belief that the savings mindset of Indian consumers, driven by weaker social security measures, leads them to prioritize self-savings and investments for themselves and their children.

Savings Mindset in India

Unlike the West, where individuals tend to save for their own benefit to a greater extent, Indians have a strong savings mindset due to the lack of robust social security measures. Mercedes-Benz India’s official highlights this difference and suggests that if potential customers were to redirect the funds they invest in SIPs towards the luxury car market, it could lead to a significant boost in business for luxury car manufacturers.

The savings mindset in India is deeply ingrained, with individuals often prioritizing long-term financial security and savings for future expenses such as education, healthcare, and retirement. This cultural inclination towards savings has been a characteristic of Indian society for generations, driven by a sense of responsibility towards oneself and one’s family.

Post-Pandemic Shift in Savings Habits

The COVID-19 pandemic brought about significant changes in the savings habits of Indian consumers. With the volatility in the stock markets and the uncertainty surrounding the economy, many individuals turned to SIP investments as a means to mitigate risks and build wealth over the long term. The bull run in the capital markets, coupled with the accessibility of investment information through smartphone applications, further fueled the popularity of SIP investments.

As a result, the inflows through SIPs in India have been consistently above the Rs 12,000-crore mark since May, reaching a record high of Rs 13,040 crore in October. This surge in SIP investments indicates a shift in the investment behavior of Indian consumers, with a greater emphasis on regular and disciplined investing rather than allocating a significant portion of funds towards luxury purchases like cars.

Impact on the Luxury Car Market

Despite the surge in SIP investments, the luxury car market in India has been witnessing a positive growth trajectory. The industry recorded a significant increase in sales, with an estimated 17,000 luxury vehicles sold between January and June 2022, marking a 55% growth compared to the same period in the previous year.

This growth can be attributed to various factors such as new product launches, sustained demand for existing vehicles, and the increasing aspirations of consumers. However, the Mercedes-Benz official believes that the growth potential of the luxury car market in India could be even higher if consumers reallocated their savings from SIPs to luxury car purchases.

High Taxation as Another Challenge

In addition to savings habits, high taxation on automobiles in India poses another challenge for the luxury car industry. Stephan Winklemann, the Global CEO and Chairman of Automobili Lamborghini, highlighted that high taxes not only affect the luxury car segment but also restrict the growth of the entire automobile market in India.

Currently, India levies a GST rate of 28% on automobiles, with additional cess ranging between 1% to 22% based on the type of vehicle. Fully imported cars attract customs duty of 60% to 100% based on the engine size and cost. These high taxes make luxury cars more expensive for consumers, impacting their affordability and consequently affecting sales.

Conclusion

The savings habits of Indian consumers, driven by a strong savings mindset and the popularity of SIP investments, have an undeniable impact on the luxury car market in India. While SIP investments provide a disciplined approach to wealth creation, they also act as competitors to luxury car manufacturers. However, the industry continues to witness positive growth, driven by factors such as new product launches and increasing consumer aspirations.

To unlock the full sales potential of luxury cars in India, it is essential to understand and address the factors influencing consumer behavior, including savings habits and high taxation. By creating an environment that encourages luxury car purchases and provides more favorable taxation policies, the industry can further thrive and cater to the growing aspirations of Indian consumers.