The A-Class gamble

2013 Mercedes in India

It's a bold move, no doubt. But will it really pay dividends in terms of sales volume, especially in a country like India? We are talking about Mercedes' most affordable offering in the country yet – the A-Class. It is available in both petrol and diesel versions and the latter - which is the more affordable of the two - costs about Rs 22 lakh.

This sticker price doesn't seem hefty for a Mercedes, but when you consider the A-Class is in fact a hatchback, the equation changes completely. Before we conclude what the likely fate of the A might be in India, let us explore a few facts first.

The new generation A-Class has done well for Mercedes in most of its markets since its launch. And there's good reason for it. In most European and American cities, buyers are increasingly looking at smaller cars. Cars that guzzle less fuel for it is the right social statement; cars that are easier to park and ones that aren't too difficult to drive around because traffic congestion is on a rise. But what these buyers don't want to compromise on is quality, luxury, safety and equipment. Therefore, cars like the A-Class and its competitors like the BMW 1 Series and the Audi A3 - hatchbacks again - tend to do well.

Shift focus to India, where like China, the number of cars in relation to the number of households is dismally low. This is also the reason both India and China are so important to car companies, because this low penetration means huge sales potential. Our rising incomes are only working towards convincing the companies that we hold the key to a greater future for them.

This presents a unique problem, however, particularly for cars like the A-Class. Because the penetration of cars is so low in India, we still view them as an aspirational purchase. Consequently, we always want a car that looks more upmarket and expensive than it costs because it helps boost our social stature. And if you make the mistake of labeling something 'cheap', there's no real hope for it to succeed. The Nano is a typical case in point.

We as Indians - and I am talking about the majority here - perceive large to be expensive. This association with size isn't restricted to vehicles, mind you; things like fridges and televisions too are judged by size first and technology and benefits later.

In the automotive world, we perceive sedans to be more upmarket than hatchbacks and SUVs more premium than sedans. Why else should the Swift Dzire sell more than the Swift even though you get similar interior room and equipment, but better driving feel at a lower price in the Swift? Or why should the Fortuner sell in the thousands every month while the similarly priced, but hugely better equipped car like the Passat can't even get into the hundreds?

So what chance does an expensive hatchback stand in a scenario like this when one can buy SUVs for the same money? Or better still, one can spend a little more and buy SUVs wearing luxury badges like Audi and BMW. Not a very good chance, obviously. One might even suggest that Mercedes themselves are unconvinced of the A-Class' sales potential, given that they've chosen to import it as a CBU against assembling it here at lower cost. It appears to be simply a matter of filling a void in the price range. The Mercedes GLA, when it arrives, will be the serious competitor in this bracket and a far more serious proposition for Mercedes.

Given the car's pricing, almost all A-Class buyers will be business people over salaried employees. And as a result, the A will be the second or third car in the family. Given that it won't really be very important in the overall scheme of things in a wealthy household, why wouldn't they just buy a regular hatchback which would serve the same purpose? I am not saying the A-Class will bomb for sure, but it being a sales hit, is a tall ask for sure.