[EssYouWe]

Originally Posted by xingamazon

The BMW operation is a CKD operation, and needless to say they also will be affected by this.

It is a proper assembly operation, and might be able to comply with the new definition of CKD. Of course, this is all conjecture as I do not know the details of their assembly plant.

Two corrections here:
China is a way bigger market than India not at par like you mentioned.
They sell around 13 million and we hardly touch 2.5 million a year.
Thailand is not a big market I know, but it had FTA with any country you name, thanks to its tax laws. Thats why it almost functions like the manuf hub for AP including australia and even Europe now.

Exactly! India has shown itself more than willing to forge FTAs with EU/Japan/ASEAN. I am sure a lot more would follow. With cheaper input costs, these foreign manufacturers can use India as an export base. Apart from that, there is a huge purchasing potential developing in India.

Its cheap in US not because of manufacturing there, its cos of thier tax structures.

I cant believe that the price gets doubled in India due to the 10% extra tax. What would you change in the current tax system (which won't happen through GST) that will help the cost come down to American prices?

[HKap]

Originally Posted by xingamazon

Its cheap in US not because of manufacturing there, its cos of thier tax structures.

You are partially right about the reason why it is cheap in the US. Their tax structure is different from ours and it would make a difference of maybe 10-20%. However, the cost difference is much bigger than 10-20%. A lot of this can be attributed to the cost of importing the components (not including duty), and low volumes. If you can address these two issues through local manufacturing and reduce cost thereby increasing volume the cost per vehicle will come down. A part of it can be passed to the customer and a part can add to the increase in profit!!

[Aroy]

Originally Posted by EssYouWe

It is a proper assembly operation, and might be able to comply with the new definition of CKD. Of course, this is all conjecture as I do not know the details of their assembly plant.

I cant believe that the price gets doubled in India due to the 10% extra tax. What would you change in the current tax system (which won't happen through GST) that will help the cost come down to American prices?

1. As far as I know none of the Germans are assembling their Engines and Gear Boxes here. Most of these operations are centralised and a typical plant has a capacity of 250,000 or more pieces per annum. What they can do is to dis-assemble the engines and gear boxes and ship them as ready to assemble kits.

2. The cascading effect of India taxes are nearly 100% (or half the finished price). The import duties are to balance the taxes imposed on manufactured vehicles in India. The nominal tax of 60% attracts countervailing duties to make it 100%+.

[avishar]

The BMW plant is a CKD operation and in fact i did some searching and it seems the BMW operation in India run at very low localisation restricted to seats and things like batteries.

Peter Kronschnabl when he was the head here said this in an interview last year "Currently, the localisation is at 10 per cent. The volume at this stage is however, too low to increase the level of localisation," he said. The volumes had to reach at least 10,000 units for the company to raise its localisation levels."

Lets just look at it from Audi's point of view.Currently they sell around 4,000 cars a year.Their predictions for 2015 would be around 10,000 cars and for 2020 30,000.These might sound big numbers but even 10 years from now they will sell hardly 2,500 cars a month.That too majority of the sales would be from say from 4 major models.Of which max 3 might share an engine and gearboxes.So its just around 2,000 engines and gearboxes a month 10 years from now.

Audi sell around 1 million cars a year so india contributes about .4% total sales right now.Granted India is an emerging country but audi is not doing to shabbily,its sales even in developed countries is increasing very fast,its german factories are running at full speed to meet orders.So its not that India is the centre of Audi's attention.
However if they leave they will find it hard to regain its brand name and customer confidence.

Even if they decide to make india their export hub to justify their expense and get the required volume of sales,i doubt they will find suppliers that can provide their level of quality.

[xingamazon]

Originally Posted by EssYouWe

It is a proper assembly operation, and might be able to comply with the new definition of CKD. Of course, this is all conjecture as I do not know the details of their assembly plant.

Like mentioned by others its a pure CKD, belive me I have seen the factory from outside its hardly more than two football grounds put together. You cant have full fledged assembly within that area.

Exactly! India has shown itself more than willing to forge FTAs with EU/Japan/ASEAN. I am sure a lot more would follow. With cheaper input costs, these foreign manufacturers can use India as an export base. Apart from that, there is a huge purchasing potential developing in India.

Its too optimistic to thing the FTA is anywhere near, dont think it will be in place for next 5 yrs. Moreover, only talks of FTA are with Japan and EU. These are places where Audi already manufactures cars no point in getting that market.

This is exactly what I am talking about, it would have made so much sense to implement a rule like this post getting the FTAs in place. You try doing in before that, companies like BMW will shut their two ground facility as it will be the same cost for them to import CBUs.

BTW, I am guessing we are taking this topic too away and discussing socio economic / macroeconomic issues. This will be my last post in this thread. Its getting boring.

[Aroy]

Originally Posted by avishar

Even if they decide to make india their export hub to justify their expense and get the required volume of sales,i doubt they will find suppliers that can provide their level of quality.

They need not source components in India. They will just need to import the components (gears, shafts, blocks, heads etc) and just assemble them here. Abroad the components and small (<20,000/annum) assembly plants are often separate, with the "Engine" or "Gear Box" plant a pure assembly operation with associated QA and testing.

[diffsoft]

Originally Posted by Aroy

They need not source components in India. They will just need to import the components (gears, shafts, blocks, heads etc) and just assemble them here. Abroad the components and small (<20,000/annum) assembly plants are often separate, with the "Engine" or "Gear Box" plant a pure assembly operation with associated QA and testing.

So what I understand, it's not too much of a hassle to change from the current CKD operation to the "new CKD operation" for avoiding higher import duties. This then requires changes in plant layout and assembly related investments and going one level lower in the supply chain. And related changes in personnel / training etc.

Is that correct?

[CaliAtenza]

Originally Posted by airbender

+1 to that. The industry has been using the loop hole for years now and when it is closed they start complaning.




These things are already happening in developed countries. They only talk about free trade when it benefits them. People have to be wise enough to notice them. Some examples:
1. Visa issue with US and Europe: Govts have made it hard for indian companies to get visa's for onshore work. Well, forget indian companies, companies owned by indian origin americans in US also find it hard get h1's.
2. Public sector not allowed to outsource.
3. Industries like garment exports.

WTO defines trade as goods and services. By restricting the visa's they are not allowing free trade/services.

Even US has additional tax for vehicles which are imported.

If we did not have tax on vehicles imported to begin with then only companies having manufacturing plants in India will be tata/mahindra. Every one else would have imported causing a loss of 1000's of manufacturing jobs in india.

But the tax in the US for imported vehicles is pretty low, and besides, only fools pay MSRP .

[Aroy]

Originally Posted by diffsoft

So what I understand, it's not too much of a hassle to change from the current CKD operation to the "new CKD operation" for avoiding higher import duties. This then requires changes in plant layout and assembly related investments and going one level lower in the supply chain. And related changes in personnel / training etc.

Is that correct?

As the engines and gear boxes are imported as fully built up units currently, there is no space to assemble them in the plants. Their assembly from components would require a brand new facility, with associated QA and testing facilities. If you can manage, try and watch the BMW and Ferrari program of their manufacturing facility on Discovery to get an idea of what is required.

What makes it feasible for Audi is that their three brands in India have better numbers and share a lot of engines and may be a few gear boxes amongst them, so the numbers may be more favourable in their case compared to Mercedes and BMW.

[avishar]

Originally Posted by Aroy

They need not source components in India. They will just need to import the components (gears, shafts, blocks, heads etc) and just assemble them here. Abroad the components and small (<20,000/annum) assembly plants are often separate, with the "Engine" or "Gear Box" plant a pure assembly operation with associated QA and testing.

I never thought it in that way.So they could also do the samething now also,set up an "assembly plant" for engines and gearboxes,get all the components sourced and assembled the engines,a CKD engine.

I am sure it wont cost them much to set up a smiple assembly line for engines and gearboxes.

[ghodlur]

Some relief to the Luxury car manufacturers, the GOI has clarified on the definition of the CKD going ahead for the proposed hike in the customs duty. The link provides a glimpse at the relief measures. Audi, BMW and others can now heave a sigh of relief. I think extensive lobbying did the trick for them.

Luxury carmakers to breathe easy as govt clarifies on CKD - CNBC-TV18 -

[EssYouWe]

It is a sad day for India when we bend under the pressure of some small Automobile companies.

CKDs are universally defined as the way it had been. There was no reason for the roll back.

Good to know that companies will keep minting money and we'll ensure no industrialization happens in India.

By the way, for the people who feel that Indian components cannot be good enough for Audi: http://www.team-bhp.com/forum/indian...on-martin.html
Industry develops when the demand arises. I am sure that given a demand for premium parts, our industrial sector can take up the challenges.

Also, when engine components and gearboxes are falling under the FTA, why should they worry about sourcing components from abroad.

These companies will continue running small garages in the name of assembly lines.

[shankar.balan]

My submission still remains the same.
Why should an Indian, be forced to pay roughly double the price for the same car in India, as compared to a foreign country. If these big international auto companies are really serious about India and increasing their market penetration they should definitely consider creating a proper assembly line for their vehicles including the tech bits like the engine etc. After all, we have no dearth of first class engineering talent in our country!
I just dont like the fact that abroad one can happily buy a BMW 3 Series for about 15-16 lacs on the road whereas in India the same thing would cost about 30 lacs on road. And we guys are forced to be pleased about a useless, stripped down X1 which can be "achieved" at 21-22 lacs!! Difficult to digest the pricing.

[ACM]

If we are to check out the link the CKD defination still INCLUDES kits with a preassembled Engines or Gearboxes as CKD (which attracts the higher 60% rate), and that is the way a lot of the cars are indeed imported presently for 10% duty rather than 60%. This seems to indicate that the problem for the manufacturers remains and in that sense am happy for India Inc.

It could be that the report has been incorrectly worded? and they mean cars with engines and gearboxes installed in the cars itself not assembled but brought into India seperately.

[EssYouWe]

Hmmm... from what I could decipher it is indicated that the engine and gearbox themselves are assembled. This is what has been discussed as a potential stumbling block.

@Shankar Balan
+1 to that. If Skoda can come and start selling cars at 10-15 lacs, why can Audi and BMW not do the same?