Mercedes unfazed as GST deadline looms large

With barely 10 days to go before the Goods and Services Tax is implemented across India, there is a sense of uncertainty across industry on customer sentiment and carry forward stocks.

Roland Folger, Managing Director and CEO of Mercedes-Benz India, is not unduly concerned because this is a familiar scenario panning out for him all over again. He was witness to the transition in Malaysia when he was heading operations there and perhaps is in a better position to anticipate the kind of market response to this new regime.

“I brought some kind of my GST experience in Malaysia to our India business,” Folger said in an interview. “We started detailed planning more than a year ago with our suppliers and dealers and started a dialogue to become GST-ready.”

Consequently, Mercedes became the carmaker to pass on the actual GST benefits to customers, which went beyond offering mere insurance and service packages. “We announced a downward revision in prices to cover the difference in current and post-GST ex-showroom prices for customers,” he said. “We have said weighted average for India will be about four per cent.”

This meant Mercedes passed on these benefits at its own cost and won customers’ trust in the process. As Folger said, these GST benefits are not merely for existing cars but also for the new launches.

From his point of view, though Malaysia implemented GST ahead of India, both markets are totally different from each other and hence the experience also remains varied. “India being a much more diverse country geographically, culturally and economically (than Malaysia), makes the complexities related to tax structure, even more myriad,” said Folger.

In the process, the Centre’s job of implementing a “revolutionary indirect tax regime like GST” in India is that much tougher. However, the efforts towards achieving them are “highly laudable”. By the end of the day, it will hopefully usher in a business-friendly environment.

“A unified Indian market will be a lot of positive development on the business side and that is good for everyone,” said the Mercedes India chief. It will also spawn greater tax transparency, which becomes especially important in the luxury product space where a whole lot of buyers will now feel more relaxed and less paranoid.

“You still have that slightly socialistic tendency in the Indian market where showing your wealth is not really publicly and socially appreciated,” said Folger. “This will change over time. In other countries, people have become more comfortable with such trends.”

As he put it, customers can now be more forthright and candid about their tastes and desires since they are buying what they can afford while paying their taxes too. “This, hopefully, will create a positive atmosphere in the market. Also, it will take the stigma of ‘Hey, he must have bought this car from black money’ a little bit out of the ecosystem,” he added.

While this is perceived as a clear positive, Folger is also realistic enough to know that the transition will take time with its share of hiccups and glitches. “Given the complexities of the tax structure and the diverse nature of the geography and economy of this huge country, I expect GST transition challenges to last a little longer than just couple of months,” he said. Companies such as Mercedes are gearing up for some short-term pains to achieve sustained long-term gains. The underlying message is that change is never easy but one still requires an effective strategy in place to implement GST and enjoy its benefits.

Folger reiterated that there would be absolutely no change in the company’s product strategy for the market. “We have already launched six exciting products and the seventh will be the all-new GLA SUV on July 5,” said Folger. “We see no reason to alter our product planning in perspective to GST as we have prepared ourselves and following our strategy, which has been fruitful for us.”

By the end of the day, products are Mercedes’ key to success and the idea is to get its customers to experience the latest from its global portfolio. There are a host of “fascinating products” lined up in the remaining quarters of the year. The going has been good so far for the German carmaker and in line with expectations.

“We knew that the first half of this year would be a bit challenging due to some after effects of demonetisation, he said. “But nothing has been more challenging than the diesel ban. For the moment, we believe that we can reach our targets for 2017 and possibly post double growth in our volumes.”

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