Mercedes-Benz’s 30-year journey in India began with the 1994 W124 launch with Tata Group, highlighting its strategic patience and deep commitment to the Indian luxury car market.
Patience is considered a virtue. And in India, it has undoubtedly been the case for German premium carmaker Mercedes Benz.
Having arrived in India around three decades ago, during the period of economic liberalization, the manufacturer is one of the most established in the country’s automotive history. Mercedes’s clear strategy at that point was to court the wealthy and newly wealthy citizens of the nation, who had long been denied access to luxury global automakers and had to settle for vehicles like Maruti Suzuki and the Ambassador of Hindustan Motors.
The Stuttgart-based automaker introduced its highly praised W124 to the world in 1994. Working with the Tata Group, it was imported and sold for a hefty Rs 20 lakh at retail.
The German manufacturer then maintained its position despite the collapse of many of its fellow countrymen, including those from the US, Germany, and South Korea, who arrived at the same time as Mercedes in India, opting instead to establish an assembly factory in the nation. It’s a different narrative that the automaker’s main competitors, BMW and Audi, didn’t enter India until after it had grown to see the country’s potential.
Santosh Iyer, the first Indian CEO to lead Mercedes Benz India, says, “We use a term called strategic patience and the 30 years in India is a clear reflection of our strategic patience in India.” “We believed in India and between 1994 to 2009, it was more of flat growth. But we invested in our plant and that shows the clear commitment to the market.”
The risk has paid off, as Mercedes is now the biggest premium carmaker in India. In India, Mercedes-Benz India sold more than 18,000 cars in 2023, while BMW and Audi sold about 14,000 and 8,000 automobiles, respectively. “We have gained a lot of insights into the market and the consumer, I think with experience,” Iyer says.
The Mercedes-Maybach GLS 600 SUV and the Mercedes-AMG S63 E Performance “Edition 1” sedan were the company’s two new vehicles that were introduced last month. Priced at Rs 3.3 crore for the AMG S63 E Performance and Rs 3.35 crore for the GLS, respectively, in a nation where the average disposable income is Rs 2.14 lakh or roughly one-fifth of the price. The two launches are a part of the 12 planned releases for the year, of which the top-end vehicle category will account for over 50%.
That also encompasses Mercedes’ current shift in focus, which is from going after volume in the expanding luxury market to going after what it likes to call “tapping the top of an inverted diamond.” The increase in the past 15 years, from 3,000 to 18,000 units, has been attributed to numerous initiatives tailored specifically for India. Iyer says the company is working to gradually expand and develop the market.
Mercedes sells slightly more than two million vehicles a year, of which India only provides a tiny portion. The nation, which is now the fifth largest in the Asia Pacific area, is predicted to pass countries like Turkey and Australia to become the third largest when it comes to wealth in the fastest-growing economy in the world.
According to Harshvardhan Sharma, head of auto retail practice at Nomura Research Institute, “Mercedes has consistently launched new models tailored to Indian preferences and market conditions.” “The strategic local assembly of key models has made them more affordable. There are also their customer-centric initiatives, such as flexible financing options, buyback schemes, and robust after-sales service that have built strong customer loyalty.”
Going all out
Mercedes has experienced its fair share of highs and lows since setting foot in India in 1994.
Because foreign luxury brands avoided the country, Mercedes remained an aspirational brand for a new generation of Indians who had started to profit under a new economic policy, and it dominated the luxury market in the early part of the millennium. Then, as BMW and Audi gained ground, Mercedes’s standing with customers deteriorated significantly. Early in the past ten years, the carmaker had dropped to third place in the nation’s luxury vehicle market. Iyer, who started working for Mercedes in 2009, claims that “when I joined this company, we had new rivals in the marketplace and we were slipping and then we slipped to number two and then three.”
Iyer had previously worked for Ford, Toyota, Yamaha, and other global automakers before joining Mercedes. Before returning to India, he had also briefly engaged in a business endeavor while he was in Nepal. Iyer was placed in charge of marketing operations when he first joined Mercedes; he claims that during the previous ten years, this responsibility has grown to include a variety of areas, including customer service and spare parts. He became the first Indian to take over as CEO of Mercedes Benz India in 2023, marking the historic moment when the famed automaker was taken over by an Indian.
“I don’t think I am a CEO for Mercedes Benz India because I’m an Indian,” Iyer says. “Nationality brings a lot of local knowledge, but the company believes in meritocracy. Last year more than 50 percent of my attrition was to Mercedes Benz companies, whether it is in Stuttgart, Singapore, Malaysia, or Thailand.” Mercedes Benz India operates with over 1,100 employees in India, which includes workers at the plant in Pune.
Mercedes’s annual sales have increased from roughly 2,800 vehicles to just over 18,000 since he joined the firm. At the core of that increase has been the business’s choice to establish a non-banking finance company, which has been instrumental in purchasing, and to place a strong emphasis on vehicles specific to India. “So, it’s a combination of the car-specific products that we have launched and a combination of unique financial service offerings, a different direct-to-consumer retailing model, and what we are doing in local manufacturing,” Iyer says.
Furthermore, given that the luxury market is only expected to expand over the next ten years, there is still a lot of room for growth in the Indian industry. According to market research firm Mordor Intelligence, the Indian luxury car market is projected to expand at a compound annual growth rate (CAGR) of 9.74 percent, from $4.14 billion in 2022 to $7.38 billion in 2029. Growing urbanization and shifting national tastes are major contributors to that.
“The Indian luxury car market is estimated to be around 1 percent of the total car market, but it has been growing steadily,” says Sharma of Nomura. “The market size is expected to reach around 50,000 units annually soon. With increasing disposable incomes, urbanization, and a growing appetite for luxury goods among the younger demographic, there is significant growth potential for Mercedes.”
The India tweaks
The E-class sedan, which debuted in India in 1953 and is the sixth generation model overall, is currently the company’s best-selling vehicle.
After almost 48 months of development, Mercedes first provided a long-wheelbase right-hand drive variant in India, where it was originally introduced in 2017. According to Iyer, “India has a lot of backseat dedication.” We fully understand that many customers drive automobiles on the weekends, but due to parking problems or lengthy commutes, they still employ drivers during the week. The world’s first and only market to offer a long-wheelbase, right-hand drive E-class was India.
As the best-selling vehicle in Mercedes Benz India’s lineup at the moment, its success is unmistakably proof that product strategy has an impact on rising sales volume. Others still lack a comparable choice, such as Audi and BMW.
Aside from that, the business has been experimenting with a lot of changes for the Indian market, such as the ability to disable its ADAS functions, which are a common feature worldwide, taking into account the sensitivity of Indian roads and traffic patterns. There are already about 80,000 connected cars on the road thanks to the automaker, which was also the first premium carmaker in the nation to provide connected vehicles.
However, the funding side has been somewhat of a game-changer. Mercedes Benz Financial Services finances 40% of all Mercedes Benz sales. Mercedes-Benz sells 80% of its vehicles through financing. Iyer states, “We have a unique financial product because the customer doesn’t have to pay for the car in full.” “We take a residual value guarantee on a portion of the car and only on the balance, the customer pays an equated monthly installment for 3 years, and at the end of 3 years there are options for refinancing the car or selling it back to us.”
Mercedes has been actively involved in driving up the cost of its used automobiles in the nation during this process. Consider the Mercedes-Benz GLC, for example. The GLC 200 Progressive model was priced at Rs 52 lakh in New Delhi in 2020, before of the Covid-19 pandemic, with an on-road pricing of almost Rs 60 lakh. After four years, the new GLC model is now priced at Rs 77 lakh, with on-road expenditures reaching above Rs 90 lakh. That is a 25 lakh rupee price increase in just four years.
Due to the increasing costs, individuals wishing to purchase an older Mercedes GLC model now will unavoidably have to pay a price comparable to the vehicle’s 2020 list price. The seller no longer feels the weight of the loss as much as they once did. For example, a 2020 GLC now sells for approximately Rs 50 lakh on OLX Auto, while a 2021 model now commands over Rs 55 lakh.
“The residual value of a product is determined by the desirability for the brand and the product,” Iyer says. “So, the fundamental responsibility for us is to keep that desirability high for the brand and for the product as well. Secondly, we are not into the discount route. This is a fundamental strategic difference compared to many other players in the market, which also means that you guard the resale value of the customer who is buying the car.”
“Higher new car prices can positively impact the residual value of used Mercedes vehicles, making them attractive in the second-hand market,” says Sharma of Nomura. “However, it could also push some potential buyers towards certified pre-owned vehicles instead of new purchases.”
The German luxury carmaker has also switched to a direct-to-consumer sales model in recent years, enabling clients to purchase luxury cars straight from the brand instead of via a dealer partner. This stands in sharp contrast to the current arrangement, which sees automakers sell their goods to dealers before the dealers resell the vehicles to final customers.
“The customer doesn’t get transparency on price because two dealers in a market can operate at different pricing based on discounts on their targets or their inventory,” Iyer says. “This was affecting residual value and purchase experience. What we have done is a paradigm shift.”
“Mercedes has consistently launched new models tailored to Indian preferences and market conditions,” says Sharma. “The strategic local assembly of key models has made them more affordable. Additionally, customer-centric initiatives, such as flexible financing options, buyback schemes, and robust after-sales service, have built strong customer loyalty.”
Growing well
That indicates that the carmaker has been enjoying some success lately. Iyer states, “Our average selling prices have increased.” “We used to operate at an average selling price of Rs 57 lakh pre-Covid-19. Today we are at Rs 89 lakh, and I think the most critical aspect is the right mix of cars. The company’s current portfolio includes sedans across A, C, E, and S Class while its SUV range boasts the entry-level GLA to the GLS, which starts at Rs 1.3 crore. There is also the Maybach, Cabriolets, and Coupes.
Iyer claims, “We are selling more high-end vehicles.” “Earlier the contribution of top-end vehicles was 15 percent. Today 1/4th of our sales are top-end vehicles pushing average selling prices higher.” Currently, SUVs account for 55% of the brand’s overall sales, with diesel cars accounting for roughly 56% of those sold. Four percent of automobiles are electric, with the remaining percentage coming from gasoline-powered vehicles.
In the meantime, India’s luxury market is becoming more developed as the retail price of a Mercedes becomes closer to the average selling price of cars worldwide, which is currently around $105,000, or around Rs 89 lakh. A large portion of that has been caused by the market’s shifting demographics, which now include more women and younger consumers. Women used to make about 7–8% of our sales in the past, according to Iyer. It is already fifteen percent. The salaried class used to make up 7-8% of the population, but it is now up to 12 percent, indicating that corporate India is making good profits and allocating them. The typical age of a Mercedes-Benz buyer is currently 38 years old.
The corporation would invest an additional Rs 200 crore in India this year, bringing its total investments made there to Rs 3,000 crore. Regarding electric vehicles, the firm has also chosen to take a tactically flexible stance, given that the rate of transition will probably depend on consumer preferences and market dynamics. As the rate of expansion slows down, the manufacturer has previously announced a retreat from its global ambitions for electric vehicles. In recent months, India has also experienced a slight halt in the EV transition as hybrid vehicles have started to gain traction and the country’s charging infrastructure has been overloaded.
“From a strategic standpoint, we are extremely positive about the quality of the market development rather than the volumes,” Iyer states. This entails paying close attention to what it refers to as an inverted diamond. “At the top, it is much bulkier. And as it goes down, it is much more pointed. So that’s a global strategy. We are a luxury brand, and we need to behave like one and act like one. Our shareholders expect more value from our consumers with a focus on the top end of the pyramid, the core luxury than on the entry-luxury.”
Mercedes has accomplished a lot in India during the past thirty years, from introducing luxury to raising the stakes. It is expected to continue as the benchmark for luxury cars in India for many years to come, based on historical data.
Last year, GreatGameIndia reported that during a strategy update event focused on software held in California, Mercedes-Benz unveiled a partnership with Google to include supercomputers in its cars.