The article was a lengthy one and not an easy read by any measure. I am grateful to you - and every other petrolhead on Team BHP - who took time off their schedule to peruse it. I am overwhelmed by the response the article garnered and tremendously encouraged to work on the next one.
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Originally Posted by Dr.AD Even the brands in the niche and luxury market realized this and played their cards accordingly. BMW did not depend only on the 3 series (which is globally their bread and butter model) to sell in India. They brought in the X1 (which was perfect for Indian market and sold reasonably well), and then they also made sure they had 5 series, X3, 3GT and etc which all sold reasonably well. Mercedes too had multiple cars. As a result, BMW and Mercedes are again leading the luxury segment in India. Whereas Audi, which unfortunately depended on one or two models most of the times (A4 and Q3) finds itself in serious troubles |
Food for thought. 2nd generation BMW X1 and Audi Q3 have been best selling cars in their respective brand’s portfolio. Owing to lower price points, they contribute, or used to contribute, nearly 25%-40% of the entire volume. The case of Mercedes-Benz is a little different, where E-Class has remained the best-selling car, not mere in Mercedes’s India portfolio, but the entire Indian luxury car market. Also, 1st generation GLA was a shamelessly jacked up hatchback, and didn’t garner so much attention, unlike the other two, having crossover silhouette.
Though the Indian luxury car market is at a near stagnant level since 2015, still luxury carmaker - Mercedes Benz and BMW - has been fiercely competitive in India.
Unlike the mass market, the sedan still contributes 50% of the luxury car market, as owners are mostly chauffeur driven. Long-wheel-base (LWB) E-Class launched in 2017 was a game changing product. To counter Mercedes, BMW has fielded two products – 5 Series and 6 Series GT. In fact, in a segment below also, BMW has fielded 3 Series and its LWB version to expand the price spectrum and counter the competitive threat. Before that, BMW use to have a 3 Series GT (3GT) with slightly larger cabin and panoramic sunroof to expand the nameplate range, and 3GT use to sell slightly more than 3 Series. It may lead to cannibalization of its own products, but at the end of the day, BMW will be able to keep the customer in its fold. Steve Jobs famously said and GTO keeps on reminding - “If you don’t cannibalize yourself, someone else will”. How Audi India countered it, they simply started a new business model of selling
‘discount’. With petrol only engine option (April 2020 onward - BS6 era) and
‘discount’ selling business model, it seems the fate of Audi is sealed and how.
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Originally Posted by sandeepmohan What takes me by surprise about the Ikon's initial 70% localization content, this never felt the case when you had to fix the car. Parts were astronomically priced. |
The devil lies in the details. Let me try to illustrate what could be the possible reason with an example. Let us consider the HVAC (heating-ventilation-air-conditioning) system of the car. The table created below lists out various components which goes into the HVAC system along with cost (dummy values). Let us assume some components are imported and some are sourced locally either from a global or local vendor. Now there are two ways of reporting localization %. Either in terms of the number of parts (quantitative) or the cost of the parts (qualitative). Looking at the aggregate value at the bottom end of column (4), the car manufacture can easily claim a localization level of 80%, however, column (6) clearly indicates that imported parts cost 53% of the entire system.
The imported compressor shown in this illustration is the most expensive part and vital as well. So if it goes bad, for what so ever reason, the cost of replacement will hurt the customer’s wallet badly.
And the story does not end here. An imported component is also exposed to foreign exchange development, change in tariff (custom duty) and non-tariff (certification, country specific restriction etc) import barriers imposed by the government from time to time as well, and is vulnerable to adverse development of any of these factors. Let us extend the compressor example further. Let us assume that the imported compressor was priced at $ 200 (usually have very high mark-up) from the country of origin in 2007.
If landed cost was ₹ 8,242 in 2007, it would pinch ₹ 14,739 now, based on the current foreign exchange rate.
There could be a wide range of reasons for sourcing imported parts, like – economies of scale in some global locations, low volume in the local market, unavailability of local vendor or technical know-how, quality concerns etc. Let us see how does this pan out in the real world with the below simulation.
At the time of launch : “We have achieved 80% localization” makes a good PR statement from the manufacturer and creates a false belief of lower price of after sales parts.
Moment of truth : importedpart needs a replacement for whatsoever reason, and customer visits after sales center to discover the astronomically high price of parts. False belief shatters and perception of the high cost of after sales develops, and thanks to word of mouth, it settles down on memory of the existing and potential future customer. End result – your quote summarizes it all.
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Originally Posted by V.Narayan On team BHP I often read the view criticizing the sub 4-metre rule. I wonder why? In our country with its crowded roads, mixed forms of traffic, often narrow roads within cities it makes sense to encourage cars with the smallest footprint and tightest turning circle. Of course building public transport infrastructure would be even better. I believe, and will state at the risk of my neck being throttled on the forum, that we should also have an even greater concession for cars shorter than 3.6 metres. The road width of our inner cities and already built areas cannot be increased very much so the next best is to reduce vehicle footprint and improve public transport . Sadly progress with the latter is patchy except for the metro construction in now 13 cities. |
Food for thought, Government certainly needs to revisit the whole taxation system and get their objective straight as to what they want to achieve in future, as there are different policy levers to address issues like – road congestion or environmental pollution or reduce consumption of imported crude oil.
In 2006, assumption(s) and objective(s) were different -
“On cars, I propose to reduce the excise duty to 16 per cent from 24 per cent, but only for small cars.A small car, for this purpose, will mean a car of length not exceeding 4,000 mm and with anengine capacity not exceeding 1,500 cc for diesel cars and not exceeding 1,200 cc for petrol cars.I am confident that industry will seize the opportunity to make India a hub for the manufacture of small and fuel-efficient cars.” - 2006 Union budget speech by the then Minister of Finance.