India’s wealthy, unlike its poor, were not affected financially by Covid-19, and that has led to hope among luxury carmakers that this segment will be able to continue its upward momentum in 2023 as well. In an interview, Naveen Soni, president, Lexus India, tells Mihir Mishra that smaller towns and first-time buyers in metros are contributing to the uptick in demand for these cars. Edited excerpts: The passenger car industry reported its best-ever year. How was 2022 for luxury carmakers in India? The size of the industry (luxury car market in India) was 41,000 in 2018 but shrank to something like 18,000-19,000 units or even lesser in 2020. So, this was expected because of Covid-19. But even during the Covid-19 period, the growth for high net-worth individuals (HNIs) did not suffer, only the market size did. That happened primarily because the priority of these people shifted to health and mobility was not a priority. So, It was not an economic issue as far as the luxury car market is concerned even during Covid. Luxury car sales have different parameters to benchmark capability and the future potential as compared to passenger car sales. During Covid-19, the growth of the rich and super rich continued its momentum, which meant their capability to earn was constant. As we came out of Covid-19, not only the HNI segment, but other people also joined the luxury car market. What are these new segments of people joining the luxury car market after Covid-19? So there are two primary reasons behind the rapid return of growth in sales in the luxury car space. One is the constant that there is this created demand that was added during the pandemic period and helped us grow in the post-pandemic period. Second is there was a certain set of customers, who faced a lot of challenges during Covid-19. And a lot of unpredictability has been seen by them (during Covid). So, they have been saying you only live once, express yourself! This YOLO effect gives them the confidence that they want to come out in numbers to express themselves in the market. And that is why we are seeing a double impact. Despite high demand, luxury carmakers did not report their best-ever year in 2022 We would have reported best-ever sales in 2022, if supply (semiconductor chip) was not not an issue and crossed the highest-ever sales mark of 41,000 units (this record is of 2018). But I am confident that with the clear signs of supply revival, we are confident that the growth rate will be much better this year. In 2022, luxury carmakers sold 36,000 units and pending orders are estimated to be about 8,000 units. If we were able to deliver even half of the total pending orders of 2022, we would have breached or hit the highest-ever sales number. Many luxury car makers in India, including Lexus, have reported their best-ever year. We surpassed our 2021 number by June of 2022. And by September, we were already at our highest-ever sales and the business size grew about three times as compared to the previous year. Did sales come from the usual tier 1 cities or have new markets opened up too after Covid? The smaller towns also are contributing to sales now. By smaller towns, I do not mean cities like Pune or Ghaziabad, it has moved beyond that. Cities like Vijayawada, Coimbatore, Madurai, Bhubaneswar and Jaipur are contributing more to sales. Even in these cities people are more than willing to experiment with luxury cars and it is growing at a higher percentage but on a lower base. Also, a large number of first-time buyers are also joining the luxury car market mainly in the metro markets. These youngsters want to express themselves and are purchasing luxury cars. This has led to a decline of three to four years in the average age of owners of Lexus vehicles in India. Passenger vehicle manufacturers are predicting the sales boom of 2022 to not continue in 2023. Will luxury car sales be hit too? I think the pending orders — both for luxury cars and the mass market cars — should sail us through at least for this year. India is a big market by itself and we should be able to sail through this because India seems to be not as impacted as other markets as far as recession is concerned. I am cautious about 2023 and worried about 2024.
