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Posts Tagged ‘Mercedes Benz

The luxury auto madness of Aurangabad and Kolhapur

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Aurangabad city's Shahganj area: the wide and clear avenues, spacious squares, well-regulated traffic and absence of pesky pedestrians and vendors make it a pleasurable drive for the privileged BMW/Mercedes owner.

Aurangabad and Kolhapur, both cities in the state of Maharashtra, western India, have begun an alarming new trend in conspicuous consumption which is extraordinary even by the profligate standards of India’s new urban rich. Groups of residents in both cities have banded together to set records for the number of luxury cars – BMW and Mercedes Benz – ordered in a single day!

In October 2010, a group of wealthy Aurangabad residents took delivery of 150 Mercedes Benz saloons, in a deal worth an estimated 650 million rupees for the auto brand and its regional dealer (based in the city of Pune, Maharashtra). Also in October 2010, a group of wealthy Kolhapur residents decided that if there is to be a mass purchase of luxury cars, their city should be second to none. In early December 2010, according to news reports, the group had swelled to 180 and they were aiming for 200, each of whom would place an order for a Mercedes Benz. Meanwhile, the wealthy residents of Aurangabad decided now to make a mass order of 101 BMW saloons (a deal worth an estimated 400 million rupees), which they expect to take delivery of in January 2011.

Aurangabad is a city of around 900,000 residents (2001 Census) while Kolhapur is home to around 500,000 residents (2001 Census). Until 15 years ago, both cities were centres of trade in agricultural produce, cotton and sugarcane being the respective dominant crops. The economic ‘liberalisation’ in India has clearly brought about the transformation whose effect we are seeing in the mass booking of luxury saloons. Why do these residents think their action is important?

Kolhapur city's Kasba Gate area: the wide and clear avenues, spacious squares, well-regulated traffic and absence of pesky pedestrians and vendors make it a pleasurable drive for the privileged BMW/Mercedes owner.

Sacheen Mulay is the president of the Aurangabad Chamber of Commerce and Industry and a Mercedes Benz owner. He is reported as saying that the group of car buyers wanted to change the image of Aurangabad as a backward, sleepy destination. “Buying a 150 Mercedes is not a joke,” Mulay insisted. “We wanted recognition in the world. Aurangabad is not a small place. We are potential buyers and there are very upcoming entrepreneurs in Aurangabad.” Reportage on the Aurangabad mass buyers also mentioned that a huge shopping mall that opened last month has quickly become popular with residents, who are asking for more luxury brands, a bowling alley, and a nightclub.

Anand Mane, president of the Kolhapur Chamber of Commerce, is the point person for his city’s group of mass luxury saloon buyers. “More than 180 people have already registered their names with us. After the models are displayed in the city, we expect more than 200 people to buy the car. This car is a status symbol and hence, the demand for the vehicle is higher compared to other cars,” said Mane. Kolhapur district has a number of sugar mills and industrial estates. The estimate is that the city already has a population of over 1o0 Mercedes Benz cars, but their owners have to send the vehicles to Pune to get them vehicles serviced. With the big order, Mercedes Benz has started building its first service station in Kolhapur.

If the wealthy Kolhapur residents reach their target of 200 for the Mercedes Benz mass purchase, that deal will be worth about 870 million rupees and together, the luxury auto-obsessed groups in Aurangabad and Kolhapur will have given the Pune-based dealers of Mercedes Benz and BMW business worth 1,920 million rupees. Who are the people who have made these purchase decisions in the name of collective status? Businessmen, young entrepreneurs, politicians, lawyers, doctors and other professionals, say the news reports. [That there is a powerful ‘status’ logic at work in these two cities has been touched upon in an earlier post on the subject of automobiles in India.]

The car-buying groups are using their business skills to pressure the dealers and banks to giving them concessional terms for their record-breaking purchases. “We are negotiating with the dealers to find out what incentives they can give us,” Kolhapur businessman Yogesh Kulkarni told news media. “An insurance company has promised to insure the car at 50% of the normal rate. Some banks are also ready to give loans at discounted interest rates.”

Mercedes Benz and BMW dealers are being asked for discounts of 10-20%, the groups are negotiating with the State Bank of India (a nationalised scheduled commercial bank) to get a loan for seven years (against the normal five years) at 7% interest (well under the 10-11% effective rural rate of inflation), and an insurance company is said to be offering motor insurance at a 50% discount.

“We want to show the world that Aurangabad is no more backward but ahead of metropolitan cities,” said Pankaj Agrawal, an Aurangabad businessman and one of the mass purchase group. What do Agrawal, Mulay and Mane consider as being “backward”? The news reports don’t tell us. We also don’t know how the expense of 1.9 billion rupees on 450 luxury automobiles is seen as a step out of “backwardness” and a step ahead of the metropolitan cities.

How do these purchases compare with living conditions in Maharashtra? Annual median household income in rural Maharashtra is 24,700 rupees (2005 data from the India Human Development Survey – this will have not in my view changed substantially given the debt shocks, agricultural stagnation and overall conditions of employment and from 2007 onwards) while in urban Maharashtra it is 64,600 rupees. Thus the total amount spent in this period of 2010-11 by the wealthy luxury auto-obsessed groups in Aurangabad and Kolhapur is equivalent to the combined annual incomes of 29,721 households in urban Maharashtra and to the combined annual incomes of 77,732 households in rural Maharashtra.

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India’s decade of wheeled deities

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In the period 2002-03 to 2008-09 the average annual growth rate in sales for the basic four categories of vehicles – commercial vehicles (lorries/trucks and buses), three-wheeled vehicles (that includes autorickshaws, which are short-distance transport in almost every Indian town and city), two-wheeled vehicles (that includes motorcycles, scooters and mopeds), and cars – has become the stuff of manufacturing legend.

India auto market (Reuters graphic)

India's vehicle market, Jan to Nov 2009, credit Reuters

Yearly sales growth of 17.46% for commercial vehicles, 13.51% for three-wheeled vehicles, 25.69% for cars, and 10.97% for two-wheeled vehicles have turned India into a market which has the potential to become a US$145 billion auto bazaar by 2016, say the Automotive Component Manufacturers Association (ACMA), the Confederation of Indian Industry (CII) and the Society of Indian Automobile Manufacturers (SIAM) who have jointly organised the expo.

These are the numbers that have caused every single major automaker from anywhere in the world to descend on New Delhi. Ten years ago, in 1999-2000, auto factories in India had made 574,000 cars – in 2008-09 the annual figure is 1,620,000. In ten years the number of commercial vehicles built has more than doubled, from 299,000 to 635,000. In ten years the number of two-wheelers built has more than doubled, from 3,778,000 to 8,394,000.

“Why India?” asks the promotional literature of the Auto Expo, and the organisers (supported by the Government of India and representing too the interests of the global auto giants) smugly provide the answers: “India is the second largest two-wheeler market in the world”, “Fourth largest commercial vehicle market in the world”, “Eleventh largest passenger car market in the world, and expected to be the seventh largest by 2016”

There are twin reasons for the rise of the Indian automobile bazaar. First, since 2006, globally the automobile industry has suffered what it plaintively calls “severe demand shock” on account of the economic slowdown and credit crunch in western markets (OECD + North America).

Auto sales, China vs USA, Reuters graphics

Auto sales, China vs USA, Reuters graphics

The drop in demand for 2008 and 2009 has been 38% in the US, 18% in Europe and 13% in Japan. In contrast the Indian passenger vehicle market maintained its demand during 2008-09 and is rising sharply for 2009-10. This is why most of the big names in the global automobile industry (GM, Toyota, Ford, Hyundai, Suzuki, Honda, Skoda, Volvo, Mercedes Benz, BMW, Volkswagen) are planning what industry analysts call “significant capacity build-up for the Indian markets”.

The triumphant notes being sounded by the automobile czars in New Delhi ignore entirely India’s worryingly uneven and imbalanced sectoral distribution of ‘growth’. What the comprador media calls “the India growth story” has only marginally touched agriculture, with evidence that over a prolonged period starting in the early 1990s, the per capita output of foodgrains was on the decline for the first time in the country’s post-Independence history, as economist C P Chandrasekhar has pointed out. Around 55 per cent of the increment in GDP over the last decade has come from the services sector, and just less than half of that contribution was due to an expansion of organised services, public administration and defence.

This gigantic exercise in furthering the cult of the car in India is underwritten by the Government of India. The industry has as its guidebook the ‘Automotive Mission Plan 2006-2016: A Mission for Development of Indian Automotive Industry’. This is a policy document from India’s Ministry of Heavy Industries and Public Enterprises which says, clearly and unambiguously in its ‘vision’ statement: “To emerge as the destination of choice in the world for design and manufacture of automobiles and auto components with output reaching a level of US$145 billion accounting for more than 10% of the GDP and providing additional employment to 25 million people by 2016.”

There’s more in the full article I wrote for Energy Bulletin here.