New Delhi: Hyundai Motor India Ltd plans to manufacture some of its top-end models, including the Santa Fe sports utility vehicle and a new version of its Sonata sedan, locally to save on import taxes and as the depreciation of the rupee against the South Korean currency has made imports expensive.
The Indian unit of South Korea’s biggest auto maker, which manufactures its small cars and mid-size sedans at its plant in Sriperumbudur, Tamil Nadu, has so far preferred to import or assemble its premium cars.
“We have already started complete manufacturing of the Santa Fe in India from August this year,” said Arvind Saxena, director (marketing and sales), Hyundai Motor India. “As a result, we have been averaging 225-250 units of the Santa Fe every month. This will be the company’s focus area in the future, too.”
File Photo of Assembly team members assisting in the chassis marriage of a 2011 Hyundai Sonata at the Hyundai Motor Manufacturing Alabama (HMMA) plant in Montgomery, Alabama, US. Bloomberg.
Still, Hyundai Motor India imports some components for the Santa Fe model from South Korea at a time when the appreciation of the Korean won against the Indian currency has made imports more expensive. The rupee has weakened 16% against the won in the last year. In addition, higher custom duties on completely built cars discourage foreign manufacturers from importing cars.
Making the cars in India will allow auto makers to pass on the savings on taxes to customers, boosting demand, analysts say.
“Demand for such cars has been growing and the segment is not something where a company will be happy by just having a presence there,” said Yaresh Kothari, an analyst at Angel Broking Ltd. “In order to bring in more volumes, they will have to cut costs, which could only be done by doing more local production. This will also help them in generating more margins on such cars as they will no longer be paying duties.”
Imports of cars into Asia’s second fastest growing car market attract a 60% tax, making it cheaper to manufacture the vehicles in India. Cars that are imported in the completely knocked-down format, or with a pre-assembled engine, gearbox or transmission mechanism, have to pay a 30% duty. If the components of the car are further knocked down, the import duty is reduced to 10%.
Hyundai also plans to manufacture locally a new version of the Sonata model that it plans to start selling in India next year.
“If we want to sell this car (the new Sonata), we will have to produce it locally to bring down its cost. As a result, we will be doing the complete manufacturing here in India,” Saxena said.
The new Sonata will mark the company’s fresh entry into the premium sedan segment, which saw sales of 15,000 cars in 2010. The model will compete with Toyota Kirloskar Motor Pvt. Ltd’s Camry, Honda Siel Cars India Ltd’s Accord and Volkswagen India’ Pvt. Ltd’s Passat, among other models.
“The segment today is very small, but it will grow in the coming years with more and more consumers looking to graduate from mid-size sedans to larger ones,” said Saxena. “We will launch the new Sonata in 2012 because we want to remain as a full line-up manufacturer. We would like to maintain that spread.”
An older version of the Sonata is being sold in India. In the first eight months to November, the company sold 95 units compared with 181 units during the same period last fiscal.
Meanwhile, Saxena said overall demand for cars is yet to pick up in India and the company may just post single-digit growth this fiscal.
“We will end up selling 5-6% more cars than last year,” said Saxena. “There is nothing which is exciting people right now. We have been trying to attract consumers by offering discounts and special schemes, but the scenario looks gloomy as of now.”
The company is offering a discount of Rs50,000 on its i10 model and Rs 40,000 on the Santro, and is encouraging its customers to buy the recently introduced Eon under exchange schemes.
Across segments, at least two million vehicles are sold in the Indian car market annually.