Mercedes-Benz was the first amongst German luxury car makers to set up shop in India. It is only recently that it has been challenged by arch rivals BMW and Audi. The volumes in the luxury car market might be small but the fight is intense. Some time in the future, India could become a big market. Whoever makes the first inroads could have the last laugh as well. Mercedes-Benz India sold 2,401 cars between January and June 2010, up 79 per cent from the same six-month period in 2009. Mercedes-Benz India Managing Director & CEO Wilfried Aulbur discusses his strategy with Bhupesh Bhandari. Excerpts:
Your first-half numbers look good. Which way is the market headed?
We are bullish. We think that India is a country that has a very bright future, and we think with our investments in the network, in the factory, in our engagement with our customers, in our people, in processes and with the kind of exciting products that we are able to bring to the market, we have what it takes to profit from India’s growth and exuberance.
We expect strong double-digit growth in the luxury car segment. We think that there is a lot of untapped potential because of the increasing wealth in the country and the changing attitudes. We believe there’s a very good potential for significant Mercedes-Benz sales in the country.
What is the return on investment for your dealers or the break-even period?
I’m not going to disclose that. But what I can tell you is that our franchise is attractive. If you look at our partners, all of them have invested and re-invested huge sums into the business. It is more than Rs 200 crore across the country. These commitments by partners clearly signify that they have faith in the brand, and that they have made money in the past and they expect to make money in the future.
Are you satisfied with your price points in India?
I think what should happen is a reduction in CBU (completely built units) import duties to enable more import of vehicles into India at reasonable prices. Currently, duties add about 115 per cent to the cost of the vehicle. With reduced duties and correspondingly improved prices, we would definitely see a significant surge in volume; and with that surge in volume we would see more investment in the country in terms of production.
Do you have a local vendor base at the moment?
Yes, we work with various local vendors. We have people who assemble the engine for us, the power train, the gear box, the axles, the underbody of the vehicle and the cockpit. So, there is value addition with local vendors as well, besides the value addition that we are doing in the factory.
And how many of the components are made in India?
What is happening is that we work with Indian suppliers and try to get them to become our global suppliers. For an Indian company, it doesn’t make sense to invest in tooling for just a few thousand vehicles. The only thing that is of value to an Indian company is when it becomes a supplier to our global range of products. A good example is Bharat Forge. It is doing the crankshaft for our new four-cylinder diesel engines.
And how many such vendors do you have?
We currently work with 30 to 40 vendors and we have a list of about 300. We have also invested in sourcing out of India. We used to have an Asian procurement office in Singapore. Now we’re sourcing out of China and India.
What does the audit of your brand show? How does it compare with other German car makers?
Our brand claim is: The best or nothing. For us, this clearly means that we want the best or nothing for our customers. That means the best or nothing in terms of infrastructure on the retail side — sales and after-sales. It means the best or nothing in terms of the kind of products we bring into the country, the kind of technologies we bring into the country, and the kind of customer connect that we have.
What will be the average age of your customer?
It will be 35 to 40. That’s quite low compared to other markets.
Has it been coming down over the years?
Absolutely. Wealth generation in India is happening rapidly, and it is happening with young people — either as entrepreneurs or as high-level executives in multinationals and large Indian companies. This is the kind of clientele we are tracking.
Some experts say that Mercedes-Benz is a car for the previous generation.
Not at all. If you look at our DNA, our heritage, you will find that as a company, we take advantage of changing platforms to make sure that we design vehicles that speak to Indian customers. We have a very aggressive and sporty C Class, we have a very aggressive and sporty E Class, and we have a very dominant S Class. These are designs and interpretations of Mercedes-Benz that attract not only the young at heart but also the young.
Till a few years ago, Mercedes was the undisputed choice of the CEO. Is it still the No.1 choice?
If you look at the S Class segment, we’re clearly the leader by a significant margin. In the E Class segment, we are the leader. We’re also the leader in the M Class segment. In the C Class segment, we’re currently a little behind but we’ll change that by the end of the year. So, I think we’re doing quite well both at the entry level as well as the top level where you simply want the best vehicle money can buy. There’s only one luxury brand in this country that has proven its worth on Indian roads time and again and that’s Mercedes-Benz. We’re able to offer a three-year warranty on our vehicles. Again, nobody else does it. Why? Because we have faith in the performance of our vehicles and in the experience of our vehicles in an Indian environment that makes it feasible to do this.
Do you see a Mercedes-Benz car built just for India or are the volumes still too low?
The volumes are too low. If you look at China, it has now over 100,000 Mercedes-Benz cars on the road. So, that clearly means you will ask the Chinese customer what he or she wants when you design your new vehicle. China today is the largest S Class market, twice as large as Germany. So, we will design the next S Class according to the Chinese taste. And I think this again takes us back to my point about bringing down import duties.
Your trucks are perceived as very expensive. You need to bring down the prices.
You need to bring up your purchasing power. The fact of the matter is that the right way is not to say, “Oh! You are too expensive”; the right way is to look at it, say, on a GDP-per-capita basis. A truck is a business proposition. My product in terms of total cost of operation vis-à-vis the revenue it generates needs to make sense to customers. If you look at truck operations, you’ll find that in terms of maintenance cost, uptime, fuel efficiency, load carrying capability, Mercedes-Benz trucks for mining operations make sense. That’s why we’ve been able to sell more than 800 trucks already in the country, and we’ve been able to do that in a profitable way — we were cash flow positive in the second year and broke even in the third.
For buses, last year was very difficult. We sold only nine buses in 2009 because our target market segment collapsed. We wanted to sell to the private operators but they simply did not have the money.