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Premium-end carmakers such as Mercedes-Benz and BMW are now planning to establish a much broader manufacturing presence in India, on the back of a very rosy outlook for the domestic luxury car market.
The promise of a strong future for the niche segment stems from the exponential growth of above 70 per cent that the segment witnessed in 2010. Even though current volumes are small — at about 18,000 units a year — the common belief is that economic growth and rising incomes and aspirations would continue to act as a driver for rapid sales growth.
Mercedes-Benz, one of the first premium brands to enter in 1995, aims to almost fully produce the next generation of its popular E and C-Class sedans in India, a person with direct knowledge of the developments told Business Line .
A new C-class is expected to be launched in 2012.
Currently, it assembles the C, E and S-Class at its Chakan plant from completely/semi-knocked down units (CKDs and SKDs), while importing completely-built units (CBUs) of it's the other models.
Lower pricing, higher volumes
More domestic value-addition and manufacturing would help such companies lower its cost of manufacturing as it will avoid the high import duties (60 per cent for CBUs and 10 per cent for SKDs/CKDs) and may translate into lower pricing and higher volumes.
“As our volumes go up, the localisation will go up to almost full. The first of the models to see this will be the C and E-Class. Current localisation for these two is around 40-50 per cent. We have increased our total investments in the country to Rs 600 crore from Rs 250 crore, and are adding a new paint shop at the plant,” said Mr Suhas Kadlaskar, Director, Corporate Affairs and HR, Mercedes-Benz India. With 2010 sales growing 80 per cent to 5,819 units, Mercedes added a second shift at its plant last December, taking its annual capacity to 10,000 units.
It can add another third shift giving it 15,000 unit annual capacity and has spare land for another plant, whereby the capacity can potentially touch 60,000 units a year.
“By 2020, we expect sales to touch 50,000 units. Our strategy would be to add more models now, and we're evaluating if the A and B-Class compacts are right for India,” he said. Meanwhile, fellow German automaker BMW is also planning a broad-based strategy for India, which includes the set-up of a full manufacturing plant for high-volume models. It has also launched its motorcycle division recently.
Senior Government officials said that BMW officials had met them and discussed a long-term strategy for the domestic market.
“They are planning to set up a major base in India and also export from here. They are looking at threshold volumes of around 45,000 units a year, by when they think that it would be profitable to set up a new plant in India for manufacturing,” said a Government official.
BMW, which sold 73 per cent more vehicles last year at 6,246 units, recently launched its cheapest product yet – the X1 compact SUV at Rs 22 lakh.
After entering the market recently in 2007, it has already captured a 40 per cent share of luxury car sales, while a similar large share is held by rival, Mercedes.
The third traditional competitor, Volkswagen Group-company Audi, sold 3,003 units in 2010, marking a growth of 81 per cent. All three are also boosting their used-car business and starting a car-finance arm.
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