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‘For Mercedes, disruption is an opportunity’

Murali Gopalan | Updated on January 09, 2018 Published on December 21, 2017

Roland Folger MD & CEO, Mercedes-Benz, India

India chief Roland Folger says the company can adapt to change a lot faster now

Roland Folger has experienced more than his share of disruptions since the time he took over as MD & CEO of Mercedes-Benz India in October 2015.

The first big shock was the ban on 2,000 cc diesel vehicles in Delhi. which went on for a good eight months till August 2016 and seriously hit his company’s business. Then came demonetisation in November followed by the back and forth on cess levels in the Goods and Services Tax (GST).

You would expect Folger to be boiling mad but he is actually sanguine about the entire experience. “For Mercedes in India, we have changed our organisation around to believing that disruption is an opportunity and not a threat,” he says.

Finding solution

From Folger’s point of view, instead of whining about a situation, the more pragmatic option is to find a solution, which his company has “successfully done” over the last two to three years. And even while the diesel ban was clearly unwelcome, Mercedes still managed to weather the storm and end 2016 with its head held high.

“How good is your company able to deal with disruption and adapt faster? It boils down to developing an attitude to deal with things and not point fingers at anybody to find out who is at fault,” says Folger. Effectively, it means finding a solution and moving on instead of just sitting around and doing nothing.

“There will be constant change in policies for emerging markets and the quicker you deal with them, the better it is for you,” he says. “A lot of things are happening in India and you will miss the goal if you do not react quickly .”

For instance, Bharat Stage VI emission norms are due to be implemented by April 2020 while the Government has also articulated its intent to embrace an electric automotive ecosystem a decade later.

BS VI fuel will be ready in Delhi over the next four months even though BS IV will continue to be retailed elsewhere in the country.

Mercedes is ready to launch BS VI-compliant vehicles next year but this will not mean much to a buyer in Delhi if he has to drive to Jaipur, which will only have BS IV fuel to fill his car. This is where complications could arise and create chaos in the market. Ideally, it would help if the fuel is available beyond Delhi but this would be a tall order for the oil companies.

Folger believes that automakers, which launch BS VI-compliant products before the April 2020 deadline should be rewarded by way of some tax incentives on shier offerings.

By doing so, it will be sending the right message on the intent to clean up the air and acknowledging the efforts of those manufacturers going the extra mile in this effort.

A mixed year

With barely 10 days to go before the curtains come down on 2017, Folger has reasons to feel optimistic even though the year has seen Mercedes experience its ups and downs. “It started off as a normal year and we were beginning to see a consistent upswing,” he recalls.

Better news followed when GST finally made its debut and brought cheer to luxury carmakers with a cess of 15 per cent over and above the normal 28 per cent levy. This was still lower than the pre-GST levels and there was reason to believe that sales would take off with a bang.

Folger says that this was the time Mercedes could actually spot a glimpse of the future for luxury cars in India as prices came down. “The positive impact on buyer sentiment was a revelation of the potential in the market,” he says.

Yet, this honeymoon was short-lived as the Government quickly increased the cess to 25 per cent, which effectively meant a net levy of 53 per cent and getting back to square one all over again. After all, went the common reasoning, a high price tag would hardly be a deterrent for luxury car buyers who are rich and famous.

Arbitrary decision

This is precisely what irks Folger who believes that lower levies would eventually translate into an increase in volumes and more than compensate any revenue loss to the Government. “When the question of fairness sometimes comes in, what truly is a luxury product? What we are trying to say is that this whole discussion (of luxury) is arbitrary,” he says.

After all, to a young bicycle rider, luxury means a motorcycle. For a bike rider, likewise, luxury is a car and for an entry-level car, this means the next big option on wheels. “How then can a cutoff point be decided in the form of a cess to define luxury and deny someone an opportunity to buy?” asks Folger.

It is his conviction that reasonable levies could see carmakers such as Mercedes emerging “more of a dominant force” in the market while bringing in new technologies on safety, emissions and so on. “And if we can double volumes, we can double the number of jobs too,” says Folger. “India should be looking to high quality jobs, which we can provide, especially if this means looking beyond IT and services.”

The key is to make the change happen now instead of waiting for many more years to go by. The Mercedes chief is equally categorical about the fact that it is unrealistic to compare high luxury watches with “what we are doing”.

“These (watches) are imported and not built here while we have invested and created jobs,” adds Folger. “We could inject so much more. You will also see a supplier base developing new skills and technologies when the luxury car market develops.”

Yet, the fact is that India is a diverse country with its own set of complexities and challenges to deal with. Income levels also vary widely with the super rich coexisting with the poor, especially in cities such as Mumbai where the disparity is stark.

Folger is only too aware of these realities but reasons that creating jobs is the answer going forward. And this only means that manufacturing needs the right breaks, which will allow companies like his to invest in capacity and attract the right people. “My concern was that we could have done such more for India instead of this arbitrary decision on luxury goods,” he says.

According to him, the country has so much going for it already and it will be a pity if it misses the bus. Quite unlike other nations where affluence is nothing to be embarrassed about, it is a different ballgame in India where successful people sometimes feel apologetic about their wealth. This is not going to change in a hurry.

Published on December 21, 2017
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