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India-EU FTA will change biz dramatically: Mercedes Benz India

Last Updated: Tuesday, May 15, 2012 - 19:44

New Delhi: Mercedes Benz India, a part of German luxury carmaker Daimler group, Tuesday said if the import duty cuts, as proposed in the India-EU FTA negotiations happen, its business would change dramatically and would create confusion here.

The company, which today launched a new M-Class SUV priced at Rs 56.9 lakh and Rs 66 lakh, said it is looking to assemble more cars in India in the wake of government raising import duties on completely built units (CBUs).

"If it would happen, it (business in India) would change dramatically. The assumption with which we are working is that it would change but not at a short notice," Mercedes-Benz India Managing Director and CEO Peter Honegg told reporters here.

He was responding to a query on how the company saw the India-EU free trade agreement (FTA) affecting its business plans in the country, including investments that have been made so far, if it were to materialise.

"I would be totally confused as the head of Mercedes Benz India but my bosses in Stuttgart will be very happy," he added.

Mercedes-Benz India has so far invested about Rs 650 crore at its plant at Chakan in Maharashtra to step up vehicle assembly in India.

It is understood that EU is pressing India to cut import duties on CBUs to up to 10 percent.

The company said it is looking to assemble more models in India to be more cost competitive after the hike in import duties on imported vehicles.

"The Indian government has increased the import duty rates and this has not helped. If we want to sell 800-1,000 units of any model a year, it makes sense to assemble it here," he said.

In the Budget for 2012-13, Finance Minister Pranab Mukherjee had announced hiking basic customs duty on imported vehicles valued over USD 40,000 and with engine capacity of over 3,000 cc and 2,500 cc for petrol and diesel driven vehicles, respectively, to 75 percent from 60 percent.

Honegg said the company plans to assemble the M-Class SUV here along with the other models in the pipeline such as the B-Class and the A-Class.

Stating that there would be cost benefits for consumers, he said for instance the M-Class could be cheaper by Rs 9 lakh once it is assembled in India.

He also said in the long run, if any model such as the C -Class, E-Class, A-Class or B-Class were to cross the 10,000 mark a year, then the company may shift to complete manufacturing of these vehicles, instead of assembling from completely knocked down (CKD) units in India.

Honegg, however, did not comment on the timeline or the investments required for such a shift in production strategy.

Asked for comments on the company dropping to the third position in the Indian luxury vehicles segment after rivals BMW and Audi, he said Mercedes Benz India would rather focus on profitability than chasing numbers.

"We would be rather selling 100 or 200 units of profitable models rather than selling 1000 of low margin models," he said.

Yet, Honegg said Mercedes Benz India will also be looking to bring models at the entry level of the premium segment to compete with the likes of BMW's X1 and Audi's Q3.

"The game has changed with the coming in of X1 and Q3 but we are ready to face it as globally Mercedes Benz has announced the intention to be the global number one by 2020," he said.


First Published: Tuesday, May 15, 2012 - 19:44
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