Chennai: Hyundai Motor India Ltd (HMIL) will sell knocked down car kits for assembly in other markets for the first time since it started building cars in India 10 years ago, in a bid to shore up exports.
HMIL, which is India’s second largest car manufacturer, plans to sell as many as 50,000 of these kits in two years, in markets such as Iran, Russia and Ukraine, where there is a large difference between import taxes on fully built cars and on kits, according to managing director and chief executive Heung Soo Lheem.
Many countries, including India, have a tax differential between imports of completely built cars and knocked down units, with a higher duty imposed on ready-built cars to discourage heavy imports and to encourage local production and employment.
In India, the effective import duty on fully built cars is above 100% compared with 12.5% for automotive parts. This has prompted companies such as DaimlerChrysler AG and more recently BMW to build factories to assemble cars in India rather than importing fully built vehicles. Other countries such as Russia charge a 25% import tax on fully built vehicles and exempt parts imports from taxes, according to a US department of commerce document on tariffs.
The Indian unit of South Korea-based Hyundai Motor Co. is India’s largest exporter of fully built passenger vehicles and a manufacturing base for all the parent’s small cars worldwide. It exported 115,525 units in fiscal 2007 against 102,092 in the previous year
According to Lheem, the company plans to more than double its exports to 250,000 units by 2009. HMIL is building a second factory in Chennai, which will double its capacity to 600,000 vehicles a year from October. The company, along with its vendors, is investing Rs6,000 crore in this project, he said.
While Lheem admitted that the rupee’s appreciation against the dollar is likely to impact exports, he said most of HMIL’s exports are to Europe, where the euro has remained relatively stable.
“The impact has been marginal,” said Lheem. “The effect has been balanced so far”, with imports of kits balancing exports for the company, he said.