Last Updated on January 22, 2023 by Mansoor Ali
Why the luxury cars are more expensive in India?: The Indian auto industry is one of the largest on the world. It accounts of more than eight percent of India’s GDP. The luxury car market in India has seen immense growth in the last decade. This is because of the introduction of various products across different price points and also increase in the dealer network specially in tier two cities. The leaders in the Indian luxury car market are Mercedes, Audi and BMW.
In 2015, these two cars alone accounted for about forty product introductions including new vehicles as well as variants of existing lineup. Many lower price cars were introduced like the Mercedes-Benz CLA, the Audi A3 and the BMW one series. These cars were priced between thirty and forty lakh rupees. This boosted sales as there was a huge demand by first time luxury buyers buying entry-level luxury cars.
The luxury car brands have also made finance easy by offering loans upto seven years. The maximum sales of these luxury cars is in tier 1 cities. Tier 1 cities are the top metropolitan cities of India like Mumbai, New Delhi and Chennai, tier two cities like Pune, Amritsar and Surrat are the most opportunistic and fastest growing markets and are expected to dominate the market in the coming years.
Why the luxury cars are more expensive in India?
When you compare luxury cars in India and the US or the other European countries you’ll realize that there’s a huge difference. Let’s take an example of Mercedes-Benz E-class. The E350 long wheel-base costs about 55,000 US dollars which is around 40 lakh Indian rupees. The same car in India costs about 75 lakh rupees on road.
You might be wandering that why there’s a huge difference of the same car and the same model in two different countries. Here’s the answer to that the luxury brands get their cars in India in two different ways.
They either completely import the car or they import parts of the car and then assemble it here. An entire built car which is imported is known as a CBU. CBU stands for a completely built unit.
These CBU’s do not require any assembly before they can be sold out to the buyers. When the parts of the cars are imported and assembled here in India, it’s known as CKD or completely knocked down.
Completely knocked down Cars
CKD units are first sent to an assembly plant where all these parts are assembled and one complete car is made using these imported components. When talking from an Indian perspective CBU and CKD have a sharp difference in import duties. CBU units have over hundred percent import duty whereas CKD units have only 60 percent import duties.
The Indian government has strategically kept the difference in duties since CBU does not create as much revenue or employment that CKD does. CKD generates more employment as machinery and manpower investment is needed to resemble the components just to simplify the things and put them in perspective.
A ford mustang v8 which is sold in the US for approximately 30,000 dollars which is around 20 lakh Indian rupees, is imported in India as a CBU and sold for 65 lakh Indian rupees that is almost three times the price of the car in the US.
On the other hand, the Mercedes-Benz E-Class which we spoke about earlier is a CKD which costs around 75 lakh Indian rupees here in India and around 40 lakh India rupees in the US. So the price difference is a little lesser when cars are assembled here in India.
Instead of importing completely built units but why are even assembled luxury cars so expensive in India compared to other countries. Even though the cars are assembled in India their parts are still imported. This involves a lot of taxes that push the cost even after taking the cheap labor into account.
There’s another reason to this, like income tax the government wants to generate more revenue from high-end car buyers.
So, the luxury cars are taxed very heavily, so car manufacturers like BMW, Audi and Mercedes-Benz prefer assembling cars in India whereas Lamborghini, Ferrari, Rolls-Royce or Bentley prefer direct import. This is why the price of luxury cars in India is so much more higher than the price of the same cars in many other countries.
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