Mercedes-Benz, which operates a CKD (completely knocked down) plant at Chakan in Pune, may reorient the process of assembling its cars in the country if the finance ministry’s new definition, which considers CKD as CBU (completely built imported unit), comes into effect.
Under the new regime, the company has to pay over 50 per cent duty on cars built under the CKD format as compared with 40 per cent earlier.
“We are yet to get full clarity on the impact if the new definition stays. We may increase localisation, not in terms of component sourcing locally as it already stands at up to 34 per cent but building part of the unit locally,” Peter Honegg, managing director & CEO of Mercedes-Benz India told the media here today. While the government’s move may not impact the sales at large, it would certainly hit the company’s margins substantially, according to him.
On his first visit to the city after taking charge of India operations, Honegg sounded preoccupied with two issues — change in CKD definition to CBU that may attract up to 20 per cent more duty and the immediate investment plans for a bus building unit at Chakan in Pune, which is scheduled to start production by the end of this year. He said they might have to change the process of the current CKD operations at Chakan to retain the tax advantage, if necessary.
Mercedes-Benz India's new boss, however, sounded 'business as usual' while maintaining that he was not keen on increasing the market share by getting into price competition or launching an entry level luxury car at Rs 25 lakh to counter the rival BMW's move. Instead, the company wants to just focus on sales.
On the bus building unit, Honegg said he was expecting clearances from the headquarters on investment plans in the next 2-3 weeks for developing a full-fledged manufacturing plant at Chakan. The company currently produces chassis at Chakan while the body assembling is done by its Indian joint venture partner Sutlej Motors Limited in Punjab. Targeted to start production of city buses by 2011 end, the company would start bringing tooling and machinery to ready the facility apart from the body building facility at Chakan, he said while refusing to give any details on the investment front.
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He indicated that the company sales in India would broadly grow along the lines of the overall growth in sales of luxury car segment that is expected to be 20-30 per cent in India. “We are not keen on increasing our present market share of 38.39 per cent in India. Instead, we would focus on sales and expand footprint in Tier II cities to take servicing facilities closer to customers,” he said after launching a new showroom here.
Next year, the company expects to sell over 6,000 units from the present 5,000-plus with a revenue of over Rs 2,700 crore - calculated at an average price of Rs 45 lakh per unit. It has 29 dealership outlets across major cities in India. The company is also planning to launch its finance arm by the end of this year.
With the commencement of second shift at the Chakan plant last year, the production capacity has doubled to 10,000 units. This is expected to be fully utilised in the next 2-3 years, Honegg said.