People with no access to the banking system may be the worst affected by demonetisation, but luxury car maker Mercedes fears the brakes on consumer spending will soon hit them too.

Roland Folger, Managing Director and CEO, Mercedes-Benz India, feels while there is no direct impact of demonetisation on the auto sector, the indirect impact could be huge.

“People are becoming more sensitive to the fact that this is probably not a good time to show that you just bought a new S Class. Fully realising that, we are sitting with our dealers and looking for a solution to support them because we have invested substantially in their manpower,” Folger said.

He said cash crunch is the least of the problems for their buyers because 95 per cent of Mercedes sold in India are anyway sold through financing — either through banks or Mercedes finance. He fears that problems with botttom-of-the-pyramid people will soon impact Mercedes too.

“The lowest bottom of the pyramid is stuck for cash because they don't have easy access to ATMs, and that affects their overall spending. This in turn impacts retailing and will eventually trickle to rest of the businesses because people who produce food, electricity and so on, will all be affected indirectly,” he said.

GST rates

Demonetisation has come as a double whammy for luxury car makers in India who are still waiting for the announcement of the final GST rates for the sector.

“On the GST, most have the attitude of wait and watch because it is not clear at the moment whether the taxes will go up, remain same on a one-on-one basis compared to previous years or if the prices will go down for the vehicles,” he added.

Folger says both the initiatives are hugely beneficial in the long run, but the short-term impact is definitely hurting not only Mercedes but the entire luxury car market.

“Long term, it is very positive development because by breaking down various barriers between the States it is easier to retail the vehicles, to move vehicles from one State to the other. It will also positively impact used-car business. The question is sentiment, insecurity and how this will basically affect the overall business,” he said.

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