Mercedes to expand in India's smaller cities as younger generations splurge

By Aditi Shah

NEW DELHI (Reuters) - Germany's Mercedes-Benz, fresh off a year of record sales in India, plans to add another 20 dealerships or service outlets in 2025 - mainly in smaller cities where young, well-travelled business owners are indulging in luxury goods.

Rapid economic growth in India has wrought a fundamental shift in attitude towards luxury purchases among its younger generations that differs from their elders who were more concerned with living thriftily and increasing their savings.

"Now the second and third generation have taken over the family business and these guys have studied abroad, come back and are able to consume without guilt. It is not only cars, but even watches and other luxury," Santosh Iyer, CEO of Mercedes-Benz India, told Reuters.

That trend has foreign luxury goods firms like Mercedes, which currently has 125 outlets in India, increasingly looking beyond the country's mega cities such as New Delhi and Mumbai.

In smaller towns like Kanpur in central India which has a population of about 3 million and Patna in the east with a population of over 2 million, demand for its top-end cars and electric models is higher than entry-level models, said Iyer.

In cities like these, Mercedes will expand with a service centre first, he added.

Mercedes, the best-selling luxury carmaker in India, posted record sales of more than 19,500 vehicles last year, an increase of 12%. It was helped by new car launches and a strong portfolio of electric models - sales of which have nearly doubled over the same period.

The company plans to launch 8 new car models, which will include EVs, in 2025 and expects to sell more cars than last year.

BMW, which ranks as the No.2 seller of luxury vehicles in India, also posted record numbers selling close to 16,000 vehicles.

Though luxury vehicles account for just 1% of India's annual car sales of some 4 million units, they are growing at a faster pace than the rest of the market.

Much of Mercedes' growth is coming from top-end cars priced over $175,000 which now make up about a quarter of its sales in India. As a result, the average selling price of a Mercedes car in the world's third-largest auto market climbed to 9.5 million rupees ($110,600) in 2024 from 8.9 million rupees a year ago, the company said.

Iyer also noted that Mercedes has seen better momentum for EV sales in some smaller cities as many of those customers typically live in stand-alone homes which have sufficient space to charge EVs unlike those living in condominiums in cities.

That said, major cities like Mumbai and Delhi account for 80% of Mercedes' total sales and in markets like these luxury vehicles account for 2-3% of total car sales, Iyer said.

In smaller towns, the proportion is about 1.1% which leaves more room for growth.

"Top-end cars continue to grow and outgrow entry and core segments also. These are promising signs on the changing structure of the market," he said.

($1 = 85.8960 Indian rupees)

(Reporting by Aditi Shah; Editing by Edwina Gibbs)