The Hindu : Business : BMW to invest Rs. 100 cr. in Chennai facility

Online edition of India's National Newspaper
Friday, Oct 21, 2005

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Business

BMW to invest Rs. 100 cr. in Chennai facility

K. T. Jagannathan

Maraimalainagar plant to assemble 1,000 cars

To source door panels, seat covers from domestic vendors Cost advantage in assembling CKDs Car purchase finance facility

Both petrol and diesel models to be produced

GEARING UP: Stefan Krause, CFO of BMW, in front of the car that is to be assembled at its proposed facility at Maraimalainagar

CHENNAI: BMW is planning to make 3 Series and 5 Series cars at its proposed assembly unit near Chennai in Tamil Nadu. These will be imported in CKD (completely knocked down) form from Germany via the Chennai Port.

The German car-maker, it may be recalled, has located a 22-acre site in the Mahindra Industrial Park in Maraimalai Nagar, 40 km from here, to set up an assembly unit.

In an interaction with The Hindu, Stefan Krause, Member of the Board of Management and CFO of BMW, said, "We are still awaiting a final approval for CKD production." The initial investment in the plant could be in the order of 20 million euros (about Rs. 106 crore).

Mr. Krause said BMW had not yet finalised the capacity of the facility. However, he said the minimum capacity should be around 1,000 cars if it were to be financially viable. The proposed facility could generate 160 direct jobs across various layers and 320 indirect jobs. There would be a good mix of petrol and diesel cars from the facility. BMW would source door panels, seat covers and the like from domestic vendors.

Limited CBU imports

The CFO said the cost advantage in assembling a CKD car would be significant to consumers. The CKD imports attracted a duty of 15 per cent as against 60 per cent in the case of CBU (completely built unit) imports. Further, the CBUs would have to bear local taxes. The restrictions imposed by the Government had limited the flexibility for CBU imports. For one, there was a floor price of $40,000 c.i.f. per CBU car import. For another, there were curbs in terms of engine capacity — 2.5 litre for petrol and 3 litre for diesel — for import without homologation (approval of set standards). The 3 series car could not be brought into the country because of these restrictions.

More models imported

The CFO said BMW would continue to bring CBUs into the country even after the assembly plant went on stream. "We have more models in our range and will bring in other types of cars not assembled here,'' he said. BMW sold 122 imported cars in India in 2004. Up to September this year, it had sold 159 cars. To a question on the pricing of the 3 and 5 series cars, he said, "it will be at a competitive level.'' He, however, said the 5 and 3 series fitted in the E and C class, respectively, of the Benz.

Mr. Krause said BMW looked at 30 sites in 13 states and zeroed in on three states before choosing Tamil Nadu. "You have to be in the right environment,'' he said, pointing to the logistics in terms of the port in Chennai and people capability in the state. BMW would also consider financing car buying. In this context, he said that BMW Financial Services, an arm of the group, "will be part of our investment in India.'' The modalities of its financing activities in India were still being worked out, he added.

Sales network

The CFO said that the immediate priority before BMW was to strengthen its retail and after-sales networks. Currently, BMW has three dealers — one each in Delhi, Mumbai and Bangalore. "Depending on the location, a dealer may have to invest $1-3 million,'' he said.

Mr. Krause said, "India is a very difficult market. Our expectation is that India will become a wealthy nation.'' The key driver for BMW was volume, he said. This, however, depended on the process of wealth creation among high net worth individuals. "We are very positive. The potential is enormous,'' he said, pointing to the steps taken in beefing up the road infrastructure.

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