Long term goals should decide luxury car cess

The MD & CEO of Mercedes-Benz India feels that making a few pay more for luxury car s and SUVs doesn’t serve any strategic purpose. 

The Government of India has proposed an increase in cess from 15 to 25% on luxury cars and SUVs. This proposed hike, combined with an increase in road tax rates, will effectively take the price points well above the pre-GST prices. This announcement has come barely a month after the historic introduction of the Goods and Services Tax – a short time, by any measure, to gauge the impact of post-GST prices on the sale of luxury automobiles and introduce any tweaks to it. The timing apart, the market welcomed the revised prices and we were seeing the stirrings of a strong period of growth for luxury cars and SUVs when this dampener came along.

This move perhaps comes from the socialist mindset that luxury automobiles are playthings for those who can afford them, and that those who can afford them should anyway be able to shell out more for their indulgences. In an earlier era, this view would not be disputed. But today is substantially different from yesterday.

This is a new India that has just celebrated 70 years of Independence, with a whopping 65% of its population below the age of 35. In other words, these are the children of the 80s, who have grown up in the 90s and have started entering the workforce by the beginning of the 21st century. The stirrings of this demographic dividend can be felt. Today, the average age of the typical Mercedes-Benz customer in India is 37 years. A decade ago, it was 45 years. Going by this trend, we are going to see a lot more young men and women behind the wheel of Mercedes-Benz cars in the near future – a future that is optimistic, confident and prosperous. We need to offer them what they want.

The mindset of such young successful Indians are different from the past. They look for the finer things in life; they are enjoying the here-and-now; they are living the moment; they are treasuring experiences. These young Indians are in tune with the global trends and tastes, and are appreciative of the things that money can buy. Therefore, for them, the acquisition of a luxury car or an SUV is not an indulgence, but a reflection of their lifestyle, a celebration of their success. They see value in the experience of driving and owning one – for them, there is value in the design, in the features, in the engineering, in the technology, in the performance, and, of course, in the Mercedes-Benz brand.

Which leads me to the next point, and that is the perception that luxury automobiles are mere transportation machines for the wealthy – a view which is far from the truth. With the kind of engineering, research and development and extensive testing that luxury cars and SUVs go through, they naturally dominate the automotive ecosystem – especially in critical parameters like safety, performance, fuel efficiency, comfort, emissions, and, of course, driving pleasure. Luxury automobiles are technology demonstrators – the innovations that luxury cars come bristling with inevitably trickle their way down to more affordable models for a larger universe. To give just one example, safety features like ABS, EBD, ESP and curtain airbags premiered in top Mercedes-Benz models, became standard across the line-up, and today they have been democratised. A buyer in the market for a 10-lakh SUV or sedan can rightfully demand these essential safety features in his or her car. That’s because the luxury cars at the top of the pyramid, and the many customers who found value in them, made it possible. Luxury cars and SUVs, therefore, have a valuable role to play in the overall automotive system.

The luxury car business in a country like India also needs to be nurtured and allowed to grow. It will raise standards, bring new benchmarks in customer expectations, bring in better revenues, allow for the creation of 1,000s of more top-line jobs in manufacturing, at suppliers and dealers, and contribute to the GDP of the country – and, of course, introduce safer, environment friendly and world-class technologies at a quicker pace. Therefore, an enlightened price regime in which the prices of luxury cars and SUVs are not subject to sudden, unexpected and indiscriminate upward revisions is not for a few, but benefits all.

Roland S. Folger is the MD & CEO of Mercedes-Benz India.