Volvo Car Corp., a premium-car unit of Ford Motor Co., has undertaken a study to find out if it should set up a manufacturing facility in India as it prepares to sell its first fully imported car with a price tag of Rs48 lakh, one of the most expensive cars being sold here.

Numbers game: Volvo Car Overseas Corp. president Peter Cornelis

The cars will be on sale starting next week and the firm is focusing on customers in Chandigarh, Mumbai and New Delhi. Volvo currently imports these cars, fully built from Sweden. Sales of the car and India’s trade policies will determine whether it makes sense for Volvo to start making the cars here, or importing them from neighbouring countries such as Thailand and Malaysia.

“We will know about the mid-term volumes by next year, after the study is completed," said Peter Cornelis, president of Volvo Car Overseas Corp., which sells in the West Asian and Asian markets. “It costs money to put factory in a country. The volumes are part of this equation."

Cornelis said the company might use the facilities of Ford India Pvt. Ltd’s factory in Chennai if it reaches a critical volume. Volvo, which entered the Indian market last week with two models priced between Rs38 lakh and Rs48 lakh, hasn’t revealed how much sales it’s targeting in the first year.

“It’s difficult to say, but it should be at least 1,000 cars a year in future," said Cornelis. “If we come to a conclusion of investing in local production, it is logical to make use of Ford’s facilities." Volvo currently assembles its vehicle for the Chinese market at Ford’s plant in China.

Rival luxury car makers such as DaimlerChrysler AG and BMW AG estimate the market for such cars will grow to 10,000 units by 2012, from 4,000 units last year. While the former is building a new factory to manufacture cars in India, BMW assembles kits imported from Germany. Another rival, Audi AG, is planning to assemble its units in the factory of Skoda, a car maker belonging to the same group. Imports of kits are slapped with only 10% duty compared with about 110% for cars, making locally assembled cars much cheaper than imported units.

“The second part is whether import duty is to stay or going to go down," said Cornelis. “Then, we can can look at trade between markets where we already produce (such as) ­Thailand, Malaysia or China. We can explore that as a possibility," he added.

India and Thailand had signed a framework free trade agreement in 2003 and certain auto components, such as engine parts, have lower import duty. Now, the two countries are negotiating to lower the import tariffs on a host of other items, and the outcome is expected by the end of this year.