By Anand Krishnamoorthy, Bloomberg
New Delhi: Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, will expand capacity at its India factory as demand increases in a nation where the number of millionaires has risen by more than a third.
“Our philosophy is production capacity will follow market demand and right now, it’s only an entry strategy for India,” Norbert Reithofer, the company’s CEO, said in Chennai, India. “India will be a very important market in Asia in the future. So if we need more production capacity, we can always add.”
The automaker today opened its first factory in India to assemble the 3-Series and the 5-Series models in the port city. The plant has a capacity of 1,700 units a year.
Luxury carmakers such as Volkswagen AG’s Audi AG unit plan to set up new factories in India as the affluent class grows, helped by the fastest salary raises in Asia and the world’s second-fastest economic growth. Munich-based BMW had record sales in Asia last year, helped by increased demand in China and southeast Asian markets such as Singapore.
“The growing wealth in India is a big attraction for luxury carmakers,” said K.K. Mital, who helps manage Rs2 billion of stocks, including those of local automakers, at Escorts Asset Management in New Delhi. “Salary rises and wealth in the stock market are giving rise to consumerism in India.”
India’s economy may grow 9.2 % in the fiscal year ending 31March, the government estimates. The country now has 36 billionaires with a total wealth of $191 billion, more than in Japan, the world’s second-biggest economy, according to Forbes magazine’s latest annual survey of billionaires.
The nation is also home to an estimated 83,510 people with financial assets of at least $1 million at the end of 2005, up 37 % from two years earlier, according to the 2006 World Wealth Report published on 20 June by Merrill Lynch & Co. and Cap Gemini SA. The benchmark Sensex stock index has risen in each of the past five years.
To tap that growth, BMW, Audi, Porsche AG and other luxury carmakers such as Lamborghini are setting up factories or opening local dealerships. DaimlerChrysler AG, the world’s second-biggest luxury carmaker, already has a factory in western India that assembles the C-Class, E-Class and the S-Class cars.
BMW’s India factory is the fifth Asian plant for the company. The company is investing 20 million euros through the end of the year on the plant, which will put together pre- assembled kits shipped from Germany. BMW spent 1.3 billion euros on setting up its most recently built factory in Leipzig, which employs 5,500 people.
A local production unit also helps BMW to sell cars cheaper in India compared with exporting into the country through dealers. India’s government has an import duty of more than 100 % on new vehicles brought into the country.
The cheapest car from the India factory will cost Rs2.67 million ($61,420), which is the starting price of the 3- Series.
Still, India’s pot-holed highways and city roads, clogged with cars, cows, carts and bicycles, pose a challenge for fast cars. The congestion has contributed to accidents that killed as many as 1,832 people in New Delhi, India’s biggest car market, in 2004, according to the Delhi police’s Web site.
The average vehicle speed during rush hours in Mumbai, the nation’s financial capital, is about 10 kilometers an hour.
BMW boosted vehicle sales by more than half since 2000, keeping the size of the workforce largely unchanged, Reithofer told reporters on 6 March at the Geneva motor show. The company aims at boosting productivity by 5 % a year and expects to sell more than 1.4 million cars and light trucks this year.
BMW plans to increase capacity in China by 10,000 units annually, Reithofer said in Chennai today.
“We entered China thinking we’ll do 30,000 by 2010. Now, we already are selling 40,000 of only BMW brands,” Reithofer said. “Therefore, we are in line to increase our production capacity. We are in a situation where we need more cars out of local production. China is still a booming economy.”
BMW expects to sell 150,000 units in Asia by 2008. Asian sales climbed 14 % to 126,949 cars last year from 111,571 in 2005.
Growth in demand for luxury cars reflects the overall market. India’s car market may triple to 3 million units annually by 2015, according to the Society of Indian Automobile Manufacturers.
That has attracted mass manufacturers, including Suzuki Motor Corp., Hyundai Motor Co. and Honda Motor Co. Renault SA, France’s second-largest carmaker, will begin selling cars in India this year with Mahindra & Mahindra Ltd. and its affiliate Nissan Motor Co. is setting up its first factory.