Mercedes-Benz India recently began assembly of the M-Class from completely knocked-down (CKD) kits (18 October), becoming the first subsidiary outside the US to produce the large Mercedes-Benz SUV.
The locally assembled M 250 CDI is priced at Rs 4.56m (US$86,300) before local taxes, registration and insurance – almost 20% lower than the ML 350 CDI, imported fully built from Tuscaloosa, which dominates the domestic market for full-size SUVs with an 80% share.
But the luxury brand trails its German peers overall in India, primarily because of big portfolio gaps in two other SUV segments, namely the entry level, defined and led by BMW‘s X1, with Audi‘s Q3 rapidly closing in; and the mid-size category, consisting largely of BMW’s X3 and Audi’s Q5. The Mercedes-Benz GLK, which competes in this segment, is not available in right-hand drive.
However, the company does have aggressive plans to catch up, with a product assault over the next couple of years that will see the brand push into the premium compact segment with the first locally-assembled A- and B-Class models expected in 2013 and its GLC small SUV the year after.
Its strategy is not just to be a key player with a full range by the end of 2015 when, according to Debashis Mitra, Director of Sales and Marketing at Mercedes-Benz India, the total market for luxury cars will have grown by six times to 150,000 units; rather, it is to drive further expansion of the market in the five years thereafter to 250,000 units.
From that perspective, the M 250 CDI really is the precursor to the second wave of models after the C-, E-, and S-Class sedans that Mercedes-Benz has assembled locally for over 18 years. In fact, its addition to the mix was already in the works when the company moved production to its own factory in Chakan, near Pune, from a leased facility three and a half years ago.
At the time, it was the first prospective or strategic decision to locally assemble a model: traditionally, such a decision is evaluative, based on the popularity of an imported product. But it is a decision that Mercedes-Benz India’s Technical Director, Piyush Arora, says is clearly justified by the doubling of M-Class sales to 100 a month, following the introduction of the third-generation ML 350 CDI last June.
This more powerful model will be the next to roll out from the Chakan factory in the next couple of months, followed in 2013 by the GL-Class. The B-Class is likely to be the next on the line: introduced as a completely built-up (CBU) import last month, all 250 units allocated for this market for 2012 were sold within two weeks.
“The plans are more or less ready and all the production preconditions have been finalised,” says Ralf Mungenast, Daimler‘s Director of International Operations. The demand for a model must exceed a certain threshold to justify local assembly, he points out, but this demand must also be sustainable.
“You might have a very high demand for a new product in the first months, and then maybe it might slow down. If we believe there will be a sustainable high demand in the market, we do a feasibility study for each and every model, and if this is positive we start the localisation process,” Mungenast explains.
Preparing the ground for future growth
Mercedes-Benz India is investing Rs 2.5bn in the expansion of its plant, installing a new line and enhancing the existing flexible line on which the M-Class is being built together with the C-, E-, and S-Class. In addition to redesigning the marriage station to accommodate the M-Class, a joint team of local staff and Daimler International Production Services – which Mungenast also heads – put in a synchronised conveyor and programmable logic controls for all equipment “to provide adaptability” for a variety of new models.
And, with the startup of its own paint shop – which sets many benchmarks in the Mercedes-Benz world, not least because it was completed in just 16 months – the company can now respond flexibly to colour requests beyond black, white, and a few shades of grey – to which it was in part limited because of its dependence on the nearby Tata Motors and Mahindra & Mahindra facilities for painting its bodyshells.
Apart from eliminating the logistical effort and cost that this entailed, the biggest advantage of having its own paint shop has been improved stability and efficiency of the painting process, Arora explains, adding that he is confident the company will be able to recover its Rs 20m investment within three years.
The fully automated paint shop uses an exclusively water-based process, and radio-frequency ID tracking of each car body throughout. Being the newest paint shop in the entire group, it boasts better quality parameters than the other Daimler operations.
But that will be of no particular consequence to the quality outcome of its local production. Arora points out, “We’re delivering the same quality to the customer that we have delivered all along; only the effort that goes into producing that quality has substantially reduced.”
A solid foundation
Since 1999, the engines and transmissions for all locally built Mercedes models have been assembled at Force Motors in Pune using kits supplied from Germany. Engine mounts, which Daimler sources globally from India, are supplied directly by Indian vendors. A few years ago, the assembly of corner modules was shifted to Force from Spicer India, located little more than a stone’s throw from Mercedes-Benz India’s factory.
In addition to rubber-metal bonded components like engine mounts, the group’s purchases from Indian suppliers include a variety of forgings and gravity die-castings, and plastic parts like grab handles. For its local production, Mercedes-Benz India is already working on localising wiring harnesses and seats, Arora says. “In the next two years, as our numbers grow, our localisation efforts will be fully justified.”
India is a strategic market that Daimler expects to grow substantially, Mungenast declares. In line with the group’s global strategy of manufacturing as close to its markets as possible, more than 80% of the cars it sells in India will always come from local production, Arora emphasises.
The addition of the new line, which will increase capacity by 50% to 18,000 cars, and the paint shop – set up for 20,000 cars but upgradable to 40,000 – are both clear pointers to the growth in local manufacturing that the OEM foresees.
As its volumes grow and its portfolio widens, will Mercedes-Benz look at increased value-addition in India? “Whatever I can do locally at a competitive price and with the right quality, I will do here in India,” Arora replies. That, of course, will depend on each product, and on the volumes that product generates. For example, he says, “We don’t manufacture bodies-in-white today, but we might start doing that tomorrow.”
From a business process perspective, Mercedes-Benz India is fully equipped to handle the imminent growth. Its integrated management system layers the compliance procedures of TS 16949, ISO 14000, and OHSAS 18000 onto the backbone of the modular Mercedes-Benz Production System (MBPS); almost 90% of the [MBPS] tools are installed here, Arora explains.
This award-winning plant joins the other Mercedes-Benz CKD plants in Asia – Malaysia, Indonesia, Thailand, and Vietnam – and the plant in Egypt, which all assemble similar products. While a spokesman categorically rules out the prospect of Mercedes-Benz India ever becoming a “big-series” plant like the one in China, Arora hints at the ongoing upgrades in Chakan being aimed at doing just that. “We are still graduating, enhancing our line capacities and bringing in technologically advanced handling equipment so that once we go from small-series to big-series, we won’t have to make a major leap.”
