[zipperone]

I support the move as this is an opportunity for the Germans and the Japs to start engine manufacture in India. Looking at recent news, Toyota is considering and has already earmarked finance for a new engine plant for India. The price would actually come down even more on the entry level BMWs and Mercedes if they source the engines locally vs importing them.

I would rather feed Indian families with my money than a German or a Japanese one!

[issigonis]

>>>

Do Suzuki and Hyundai (actually) manufacture their engines and gearboxes in India? Or do they bring (knocked down) components which can be quickly put together again here?

Can anyone answer this definitively?


We are in for some interesting months ahead. The FM has set the cat among the pigeons. Time for the Teutons, the Big Cat and the high profile Japs to think of investing in manufacturing critical components in India, in order to stay competitive in one of the fastest growing automotive markets in the world today. [ Assuming the news reports are correct and our interpretation too]

Regards, drive safe

[avishar]

Suzuki and hyundai both manufacture their engines in india,except for the higher capacity engines which i guess due to lower volumes are imported.

Hyundai was planning on building a diesel engine plant,dont know whats the status of that.

See the problem is that we cant look at manufacturers who import engines as if they are doing something evil.Nor can we just pass a new resolution that will force manufacturers to start engine lines here.

Why would BMW or a Mercedes start manufacturing engines here?There sales are doing around 5K a year and by 2020 they expect so sell 25,000 per year.That may sound a lot but consider that maruti manufactures 5000 cars every 2 days!
So in such a case it has the volumes to to build new engines lines.Similarly as volumes increase for car makers like Honda,Toyota,GM,Renault Nissan they too have announced plans to set up more engines plants.

Making CKD units pay more for engines will make the cars only more expensive because the manufacturers will have no option to build engines plants and pass it onto the customer.Already luxury cars are so expensive in India compared to abroad this just adds to it.

Another thing is now that India has signed many trading pacts with countries like Thailand and soon Japan,sourcing vital components from those countries are more cost effective for the initial stage since the volumes are high in those countries.This dissuades manufacturers to manufacture components here.

[thedreamcatcher]

Well, the concern here is not about people who take 50L cars. There are many people who set their eyes on the 3 Series, X1, A4, C from Merc and so on, and this will act as a huge set back. And imagine what impact this will further have in a place like bangalore.

[CoolFire]

I think most people have misunderstood these provisions.

The defenition of CKD only has been changed, to indicate that such kits should not have fully assembled engine or transmission units.

IMHO, this means it will not affect the taxation of cars with at least some local content - so this will not affect 3 series, A4 or C, which I believe now have some locally produced parts. Even higher models can escape from these provisions if they have some local content.

[issigonis]

>>>

I think ( and a reading of the relevant portion confirms it) that our Lord of the Exchequer has done a clever Ralph Robins, viz., stated an intention to tax vehicles including two wheelers, at the higher rate for CBUs which have the i. engine, ii. gearbox, iii.chassis as completely imported pieces.

Therefore all vehicles which come within its purview will be taxed accordingly.
If a 330i or a 2.0 TFSI or a Jetta or a Camry or a Fortuner have these as imported pieces ( only one of the three pieces is good enough), then the customs duty will be at 110%.

Whereas I don't have any arguments about the principle (incentivise auto manufacturers to build these sophisticated bits in India etc. etc., to reap the windfall in the coming years when India becomes a Bimmer or a Benz or an Audi country take your pick) behind it, I am concerned about the suddenness of it.

Clearly intended to pull a fast one over the Europeans / expensive CKDs.

Is it a manouevre in the game between India and the EU re. the FTA? Perhaps.

Only the coming weeks will tell. We live in interesting times.

Regards, drive safe

P.S. : I am seeing my 24 year old dream of owning a Bimmer someday going up in smoke. I have to wait for my re-birth as a motorhead to dream again

[avishar]

Originally Posted by issigonis

>>>


P.S. : I am seeing my 24 year old dream of owning a Bimmer someday going up in smoke. I have to wait for my re-birth as a motorhead to dream again

That goes for all of us here.

BTW has this "finance bill" been already passed?I hope some big guns in the automotive industry go to Delhi and do some lobbying.

Its this thinking of the government that is flawed.By trying to eke out more revenue from excise duty by hiking rates they will do more damage by reducing sales.Instead if they keep it untouched,on a longer period of time their collections from current rate of duty will increase much faster!

[Torquedo]

An update from the Motoroids website:

In reports emerging after experts read the fine print of the Union Budget 2011, seems like the industry is in for a shock. According to a statement in the Union Budget 2011, engines, gearboxes and chassis, which were imported into the country as CKDs or completely knocked down units, attracting a duty of around 10% will now be considered SKDs or semi knocked down units, which attract a hefty duty of more than 60%. From the first reports, it seems that government is planning to bring completely assembled engines and other such components will be excluded from the list of CKDs which attract reduced duties.

Now this is shocking, because if the new duty structure takes effect, not only premium cars, but mainstream cars also will become substantially expensive. Some companies are still importing the engines and transmissions for even their small cars. For e.g. the engine of the Toyota Etios is imported from Japan, and the government levies a 10% duty on it considering it a CKD unit. If the component is shifted into SKD units, the duty will shoot up to more than 60% and the car will lose its price advantage.

The industry is still awaiting s clarification from SIAM and the government. We smell lobbying of the local car industry to protect their interested behind the new duty structure. What do you think, would it be prudent on government’s part to alter the duty structure when the industry is flourishing, to protect the local industry?

[kaviprem]

As far as I know, Toyota also falls under the CKD category only where Innova, Fortuner, Etios and Altis are only assembled in India, but its all currently CKD. I dont think, anything is manufactured here in India. So is the case with Honda City, Civic and Jazz !
So, this is going to hit their business too.

[ACM]

Somehow I welcome this move by the government. Even for Small Cars. I come from the IT Hardware industry and it faces a similar problem and has that industry has not evolved at call compared to the IT Software one.

In IT Hardware, the govt, kept reducing duties on CKD and SKD and even fully imported products such that the differential vs the products manufactured here only factors a reduced labour cost close to that in china but that by itself just does not justify manufacturing in India, so since the Govt. did not protect that industry it is today at best a nut and screwdriver technology industry out here, where the products are fully imported in case of high end products and lower down the line they are assembled out here. The component industry for IT (including chip and semiconductor components) has never come up here, and going by current trends never will.

At least in the case of automobile industry the govt regulation has resulted in a lot of manufacturing especially lower in the value chain. This recent change in interpretation of CKD defination could boost up prices of certain cars in the short term, but we are lucrative enough a market to make the various vendors setup actually manufacturing facilities in India.

Actually just like the fortuner, Etios etc will be affected for Toyota, the same may be the case for maybe even the Aria where the 4X4 transmission is likely to be fully imported, but this will result in these companies procuring a license to manufacture these components in India.

While we talk about numbers it is worth noting that we need not always compare the volume numbers required with those of maruti which has 50% market share, but even a comparision with TATA/FIAT/VW/Mahindra/Hyundai will do to arrive at the minimum volumes that may be required to justfy local manufacturing to save on tax and duties.

We may now start appreciating the massive facilities that FIAT has setup with TATA for engine, gearbox and transmission manufacturing in India. I belive SKODA and VW too have invested in a big way, but somehow we can be sure that the DSG and other AT transmission systems might be coming to india entirely the CKD way.

The move gets a thumbs up from me. Better for the long run.

[issigonis]

>>>

The move is right for India. It is to incentivise auto majors to manufacture critical components here rather than bring them as built pieces/sub assemblies.

Moreover, as I said in my last post, India's vehicle market can only grow larger and so will the numbers of more sophisticated and expensive cars. Prices of these cars, then, will be reasonable simply because the critical components won't be imported, but built here.

Correct move. Our chancellor of the exchequer has only plugged the loophole.
Whether this was pointed by the 'domestic lobby' or not does not matter, as long as it benefits the nation overall.

In the short run, I lose out as I can't afford to buy an upmarket car.
But so what, there is something called enlightened self-interest.

Regards, drive safe

[Aroy]

There is no rocket science in "manufacturing" engines and gear boxes. They are anyway assembled abroad in the factories. What is required is skilled manpower; which we do not lack; and advanced alignment and diagnostic machinery; which can be procured; What is of relevance is that even abroad the engine and gearbox plants are usually centralised and are high volume operations - 250,000 pieces annually or more. Thus these plants are set up centrally and supply to a whole region. If we can get the manufacturers to set up these plants, then we become a regional hub, which is good news. If the manufacturers find in non viable, then they will continue to import assembled pieces, Government taxes not withstanding. In fact initially the M800 gear boxes were fully imported, till they got sufficient numbers to justify their "manufacture" in India.

[issigonis]

Originally Posted by Aroy

What is of relevance is that even abroad the engine and gearbox plants are usually centralised and are high volume operations - 250,000 pieces annually or more. Thus these plants are set up centrally and supply to a whole region. If we can get the manufacturers to set up these plants, then we become a regional hub, which is good news. If the manufacturers find in non viable, then they will continue to import assembled pieces, Government taxes not withstanding..

>>>

If high volume manufacturing is the crux, then most Europeans won't consider setting up manufacturing for engines and gearboxes right now, given offtake in the thousands, rather than tens of thousands/millions for the high end cars in India/South Asia. So they would rather pay the customs duty and pass it on to the few thousands who (still) desire the brands.

The auto majors have to think strategically here and crosscheck their volume projections for India and the surrounding regions which can be their footprint for manufacturing here. Then decide.

For instance, if a manufacturer is confident of selling say 50,000 of its models by say 2015 in a cost effective way, by siting manufacturing in India, then it might make sense.

Please note that most European auto majors have manufacturing plants only in Europe and in the US and the rest of their plants elsewhere are assembly ops only.

Tough call.

I think (as I said earlier) that this is related to the FTA talks between India and the EU and knowing how we function in India ( multiple objectives eroding the basic premise) and the power of lobbying ( good, bad or indifferent), there will be some trade-off which might well be a sub-optimal solution forged after protracted discussions.

Regards, drive safe

[ajman28]

I support this decision. Ok, the bmers and the the mercs will be costlier, but hey, they were always expensive. This may infact be more of a reason for the people buying them to actually buy them! One of the reasons people buy these cars is because of its brand name.

This new policy has actually made the ckd manufacturers to think whether or not to put a manufacturing hub here. Most of them are anyway thinking of it. Even if one or two do make this a hub, its definitely good for the economy.

And as for the sales getting affected; I don't think this will affect the sales drastically on a whole. People will continue buying cars, and if not brand A then brand B or C.

[luky_13]

The Toyota's and Honda's have tasted the depth of Indian economy and they command respectable volumes. Innova sells 4~5K/month, Etios and Liva could touch > 10K in a while. Honda manages to doll out 5K City's a month and the tiny-tot Brio just around the corner would go on to add another 5K. These numbers tell a very interesting story one that there is this huge captive market share that these companies enjoy and the other that they are making large chunks of money outside this country on products sold locally. Each of them has been around for more than a decade, but has their commitment to localization been enough? Don't such numbers demand preferential treatment? How many more before these guys think of localization?

This is a bold step by Pranabda, the economy has been long held as a carrot now its time for the stick! There is a huge capital cost to setup such a mammoth plant which can be neutralized if these auto majors utilize India as a manufacturing hub to centralize production and further improvise numbers and bring down cost at which point they deserve a pat on the back and should be rewarded with sufficient sops by the government. The Merc/BMW's in discussion form a very small share of this I-will-sell-but-wont-build-in-India phenomenon.