Eberhard Kern took over as the Managing Director and CEO of Mercedes-Benz India in December 2012, at a time when competition from other German luxury car brands had eaten into Merc's sales. Kern has a rich experience in sales and marketing domains across Mercedes-Benz's different markets, which he has put to good use in India in the last year-and-a-half. And the results are already visible: Mercedes-Benz is selling more cars than ever before in its history in India as the brand expands its network reach and doubles production capacity. Kern says 55% of his cars sell in markets outside the two big metros of Delhi and Mumbai, signifying a diverse customer portfolio. He also does not shy away from taking a dig at competition by saying Mercedes does not sell cars by stripping them of features. In fact, for many models it only offers the top-end variant. Excerpts from an interview with Sindhu Bhattacharya:
Is Mercedes still behind other German luxury car makers in India in sales? How many cars did the Indian unit sell last year and how many does it aim to sell in 2014?
We are unable to comment on the number leadership as we are the only luxury car brand to have shared the first six months' sales numbers in 2014. Mercedes-Benz India registered a healthy 25% year-on-year growth in the first six months of 2014 by selling 4717 units. This growth is significant amid difficult market conditions. We were the fastest growing luxury car maker in calendar 2013 and in FY 2013-14. We grew by 32% in 2013 and by 47% in FY14, thus staying ahead of the curve. In the H1 2013, we grew by 25% and are confident of maintaining this strong growth. We sold 9003 units in 2013 and 9500+ in FY 14. This year we aim to maintain the growth momentum and grow in double digits.
What do you plan to do to get back Mercedes to the number one luxury brand position in India, a position it lost 5 years back? Is expansion of sales and service network an important milestone in this quest? How many sales outlets now, how many in tier II or smaller cities and by how much will your sales network expand in 2014?
Mercedes-Benz remains the fastest growing luxury car brand in India. We are glad that we have been on the top of this growth curve since 2013, at a time when most luxury brands have seen dwindling sales. We can confidently state that our strategy is paying off and we have been selling more cars now in India than we ever did in our history in this market. 2014 is our 'Year of Excellence' which is a summary of our endeavour to achieve excellence in the key areas of business operations that includes fascinating products, exciting brand experience and innovative retail programmes. In the first seven months of 2014, Mercedes-Benz has launched seven fascinating products for Indian customers.
This product offensive has seen the launch of the S-Class, the M-Guard special protection SUV, the S 350 CDI, the powerful AMG SUV duo of GL 63 AMG & ML 63 AMG, the Edition 1 of A-Class & B-Class and India's first Compact Performance Sedan, the CLA 45AMG. These products have not only kept the customers' interest level high but also have been a key factor in our growth strategy for Indian market. Expansion of sales network has always been an important aspect of our strategic growth. We have the most qualitative network presence for any luxury car maker with 64 outlets in 36 cities. We have inaugurated new outlets in Bhubaneshwar, Raipur, Bhopal, Chandigarh and Mohali. Also the AMG Performance Centres form key to our AMG network expansion. We have already inaugurated three new AMG Performance Centres in Delhi, Bangalore and Mumbai that made it the fastest rollout of AMG centres in the World. We plan to launch as many as eight more new outlets in the remaining two quarters.
How has Mercedes augmented the product lineup in India in the last two-three years to fight increasing competition and what has been the strategy on pricing vis-a-vis competition?
Mercedes as a brand has a long and outstanding relationship with customers. It represents quality, excellence, performance and aspiration. For the last couple of years, we have redefined our product offering at various price points. The foremost of this product strategy has been the introduction of our Compact Luxury Cars, the A-Class and B-Class, which were able to capture the youth's imagination. Similarly we have recently introduced India's first Compact Performance Sedan, the CLA 45 AMG in India. A lot of focus has been given on the AMG brand this year as we realized its potential in India. The performance segment is growing steadily. We also have a clear strategy on pricing. We don't sell cars stripping them of features. From our experience, we have seen that Mercedes-Benz customers prefer fully loaded cars and they are willing to pay the extra premium for that. This is one of the reasons that for many models we only sell the top-end variants.
Is Mercedes looking at targeting younger Indians? What have you done in terms of product, pricing and positioning to target younger customers?
Mercedes-Benz is getting younger with every new product and our customer base is also getting younger like never before. We have a portfolio of fascinating cars to entice the younger audience. The A-Class leads the pack and we expect the recently launched CLA 45 AMG to repeat the success in the AMG portfolio. The new design language of Mercedes-Benz represents a futuristic trend and reflects the changing consumer trends across the globe. With the product range comprising the A-Class, B-Class, the CLA 45 AMG and the yet to be launched GLA-Class, we are confident about the new segment of progressives who love driving their own car and not merely owning it. Also we have invested substantial amount in our dealerships to spruce them up and make them attractive for our young customers. Overall, as a customer focused brand, we have ensured we are ahead of others in customer experience and appeal. We are also conducting the Season II of Young Star Driver programme which encourages the youth who wants to succeed in motorsports. This is in addition to our successful AMG Driving Academy.
What kind of demand patterns do you see emerging from smaller towns and cities? Which are the fastest moving cities in terms of luxury car sales within India? And which are your top three models?
Smaller cities and towns are now very much part of the mainstream markets. We now have full-fledged dealerships in cities like Karnal, Coimbatore, Bhopal, Lucknow, Rajkot, Indore, Mohali, Baroda, Bhuvaneshwar, Raipur etc. Thus we are opening up the brand to newer customers and markets, as these are potential growth engines for us in the long term. We have witnessed demand in from these markets and though the numbers are less, these markets have great potential. The contribution of smaller markets now matches that of metros with as much as 55% sales contribution coming from markets beyond Delhi and Mumbai. Our top three models comprise the E-Class, the C-Class and the M-Class, with E-Class still remaining the highest selling luxury sedan in India.
Tell us about the "entry level" segment in luxury cars where competitors have been launching products. What products does Mercedes sell in this segment, at what price points and will this segment be augmented with more products? Is this segment profitable?
We would like to view this from a different perspective altogether. We would not term our Compact Luxury Cars as entry level, as these cars are feature rich and priced at a significant premium than competition.The case in point is A-Class and B-Class products which we believe are a strong value proposition from the Mercedes-Benz portfolio. With the launch of the new A-Class and B-Class, Mercedes-Benz India pioneered the Compact Luxury and Luxury Touring segments respectively in India and offered the young Indian customers two products that reflect their own lifestyle and a right product which they have been waiting for. The NGC (New Generation Cars) Cars have helped us in increasing our customer base and target customers who aspire to own a luxury brand. The segment is profitable and we have recently launched the Edition 1 of A-Class and B-Class at Rs 27 lakh and Rs 29 lakh respectively. We already have more than 2500 units of the New Generation Cars on Indian roads these cars account for close to 20% of the company's sales volume. This means one in five Mercedes-Benz cars sold in India is either an A-Class or a B-Class.
Mercedes is expanding its assembly capacity. What kind of luxury car demand scenario would you say exists in India right now, especially since the overall economy is still struggling? Will the luxury car market expand this year and will your share in it expand too?
We are at the final stages of doubling our current capacity of 10,000 units. We have invested Rs 850 crore in our production facility and this includes a world-class Paint Shop. Given the downturn in the last couple of years, we required some inclusive growth aspects for the economy and we are headed in the right direction. I am confident infrastructural development coupled with inclusive growth promises should be key in strengthening the outlook of the industry. Mercedes-Benz has been one of the better performers in the luxury car market and the fastest growth came from us. We expect the luxury car market to grow not more than 10-12% and the overall auto industry to grow in single digit this calendar. However, the fact that luxury industry contributes only 1.5% of the overall industry and we have a scope of increasing this to 3-4% is an encouraging prospect.
What kind of localization levels has Mercedes achieved and will this increase going forward?
Currently we locally produce five models: the C-Class, E-Class and S-Class sedans and also the M-Class and GL-Class SUVs. Together for these five models, our localisation level is around 35-40%. We have localized cable harness for some of our products. Also for the first time we are manufacturing the body of the new S-Class in India and this is also a key localization step.