Tier-II and Tier-III markets to drive demand for luxury cars in India
- December 5, 2020
- Posted by luxuryride
- Comments Off on Tier-II and Tier-III markets to drive demand for luxury cars in India
With half of 2020 gone in the covid-19 pandemic, it is now clear that the demand for luxury cars will be driven out of tier-I and tier-III markets of India. Reports coming in from almost all the major luxury car makers indicate that non-metropolitan cities are showing increase in demand for premium and luxury cars.
On one hand, early indicators had shown the luxury cars market taking a dip in the metro markets – even setting sales back by 5 to 7 years – latest reports indicate the overall sales is being compensated by the rise in demand from tier-II and tier-III markets. While it will take another two to three years for sales in metros to reach the levels of 2014-15, the growth has already started coming in from non-metropolitan cities.
The degrowth in Indian luxury car market started in 2019 owing to a global economic slowdown. The luxury car market, comprising top five players – Mercedes, BMW, Audi, JLR and Volvo, is estimated to have sold nearly 35,500 units in 2019, down from 40,340 units in 2018. The entire automotive sector took a big hit as the covid-19 pandemic hit in early February this year.But car makers expect the volume growth to start from 2021.
However, sales in tier-II and tier-III cities have been growing gradually, thanks to lesser impact of the pandemic lockdown in these markets. With less or no impact on disposable incomes of young aspirants and businessmen and women, the contribution to the overall volume of luxury cars is increasing steadily from smaller cities. Car makers are also seeing a positive trend of customers in these cities who have an appetite for performance and lifestyle cars with new body styles.
But this is not a recent phenomenon. It’s a trend that has not been impacted by the pandemic lockdown. During the last five years, share of sales of luxury cars from non-metro markets has grown by 10% to over 50%.Cities like Karnal, Chandigarh, Coimbatore, Lucknow, Baroda, and Jaipur are bringing in good consumer numbers.
The trend in non-metro markets is owed to two distinct reasons – tailored models and used luxury cars. Tailored models for tier-2 and tier-3 markets are being offered with clear price and feature distinctions. On the other hand, used luxury cars are being bought in larger numbers in non-metros.
At a time when employment and financial markets were under pressure resulting in low consumer confidence and willingness to spend, luxury car brands started introducing ‘bridge to luxury’ brands to make luxury cars available at accessible prices for young Indian buyers. This is helping entice new consumers with products at lower price points. Nearly all the major luxury car brands have adopted this strategy and are reaping benefits.
Used luxury cars, on the other hand, are finding tier-2 and tier-3 markets even better than the brand new ones. Typically 1.3 times the size of new car segment, used luxury cars are already clocking over 60 percent of all luxury cars transactions.
Location is surely playing a key role here. While tier-1 buyers are keen on making deals where they could save more, it is the aspirational buyers from tier-2 and tier-3 cities who come searching for pre-owned luxury vehicles for better returns on spending. Notably, half of the used car owners are from the non-metro cities.
The pre-owned luxury cars segment is also expected to gain interest as the industry norms change to BS6. The rule has no restriction on selling or purchasing of used cars post the cutoff date while it still applies to older BS standards vehicles. For consumers who had postponed their purchases of buying new BS6 vehicle in 2019 will probably choose pre-owned cars henceforth. This is expected to additionally fuel up this segment.
The pandemic has also forced a few changes both in the habits of luxury car owners as well as the car makers.Businessmen and women, who used to travel shorter distances by flights, are now opting to drive rather than take a flight. The younger aspirational generation is more aspiring and more willing to spend their money.
Add to that, luxury car makers have introduced digital initiatives during the pandemic that are taking the brand experience closer to the customers in smaller towns.These have had a significant impact on sales. Most have taken the digital experiences such as augmented reality to the living rooms of the aspiring buyers and are giving them the flexibility to purchase their car of choice, including in-app merchandise purchase, offers on car-life products and online help and support. Customers and enthusiasts are being offered access to features like augmented reality, placement of test drive requests, product brochures and service cost calculators among others.
Going by the changes in mobility preferences and the unchanged aspirations of luxury car aspirants in smaller cities, it looks like tier-II and tier-III markets are surely going to be driving the luxury cars markets in the near future.