We see growth in India, and are ready to invest: Mercedes

Leadership is one of the biggest chapters in the success story of any great leader. And, Managing Director and Chief Executive Officer of Mercedes-Benz India Roland Folger has been leading from the front.

Folger is not cowed down by an adverse market scenario, where the Supreme Court had banned the sale and registration of diesel vehicles with an engine bigger than 2,000 cc in Delhi and the National Capital Region (NCR).

He is driving the company with new launches, and giving thrust to the servicing strategy. In an interaction with Deccan Herald’s N V Vijayakumar, Folger delineates the company’s India strategy to combat any emerging challenges.

How do you view the market scenario in India for Mecedes-Benz?

We would be happy to maintain last year’s growth, and that to come back with the same figures.

In the beginning of the year, with the diesel ban, we were a little nervous whether we would be able to maintain the growth or not. We can happily say that there has been no de-growth in the first half of the year, and with the festive season especially in the month of October, we will be able to continue with our growth.

At the moment, it is too early to say, as we have not been able to register the complete ban of diesel vehicles with an engine bigger than 2,000 cc in Delhi and the NCR zone by the Supreme Court following a recommendation by the National Green Tribunal. We will  certainly able to give you some more clarity post the third quarter.

Are you repeating a double-digit growth in India?

No! No double-digit growth this year. We had double-digit growth last year (32% growth). With the diesel ban and the insecurity, we would be happy to keep the level of last year. In the first half of 2016, total sales in India dropped marginally to 6,659 units, from the previous year’s 6,597.

In this year, we have announced that we will bring out a total of 12 models. We have another four models in the pipeline till the end of this year.

Adding new models in the country specifically will not help in the growth, and it is a part of the overall planning. Also, during planning, we had a hope that we will have a localised version. The positive thing is that it came much earlier than what was initially anticipated.

How much cost will be reduced if the cars are manufactured in India? Did you put in localisation as compared with manufacturing in India?

At the moment, this is the ninth car that we have decided to locally manufacture in India. The strategy is always driven by the volume.

As soon as we reach the potential volume of 500 units or thereabouts, we will bring the investment to get into local manufacturing.

The reason why we could do it in such a short time of four months is because we got a pre-request from our dealers and customers. The order banks had clearly led us to believe that there is a significant demand for the vehicle in the Indian marketplace, and hence, with a lot of effort, it was possible to get the localisation done in such a short span of time.

What is the plant capacity, and how many cars can you roll out in a year?

In total, we have a plant capacity build-up of 20,000 units. At the moment, we sell about 13,000 vehicles.

So we have a lot of capacity available for the Indian marketplace, and we will focus only on India for the moment. We see nine of our products rolled out in India.

How much are you doing for the market sectors, especially for the SUV sector?

We have been able to maintain our last year’s target and sales numbers.
In the first half of 2016, we have been able to sell around 6,500 units, which was on the same level as the previous year. In 2015, we had 32% growth, so we keep the growth level despite the diesel ban and the effect it has had on our business.

How much have you invested in the capacity?

We don’t specifically invest in vehicles, but we invest in capacity. We had invested around Rs 1,000 crore in the overall capacity at Chakan.

We invest in flexibility that on one line of production can go up to two, or sometimes three vehicles that we can produce on the same line and that takes investments. We have a total of 900 blue-collared workers, and 400 white-collared workers working in this plant currently.

With a growing aspirational population of India, what will be your new marketing strategy?

The idea is to reach out and we have already done that with our new compact car versions — the A-class and B-Class. The CLA and GLA were the strongest drivers for growth as they made Mercedes-Benz vehicles available to a completely new segment, where we were not represented before.

And to add to that, our initiative under ‘Service Ride’ to make vehicles more affordable as far as their usage is concerned and their per km cost of ownership. That was the second strong influencer. We have now a combination where we will support our vehicle sales with financing that makes these vehicles even more affordable to the people who might not have that much cash.   

Do you have any expansion plans for the future?

Of course, we have expansion plans. We have a very significant growth in India. We believe that India is a market that can grow manifolds, especially the luxury segment.

We see a lot more growth that’s possible, and that is why we are ready to invest, but first we need to see some more consistent development.  

The diesel ban has not helped with our plan, but this is just a delay, and we are not stopping anything. In this year, we have announced that we will bring a total of 12 models. We have another four models in the pipeline till the end of this year.

How are you looking at the GST rollout and the good monsoon in India?

A good monsoon always helps because it gives a positive atmosphere not only to the investors, but also to the general population as well.

That was a very positive signal for us after the last two years, when the monsoon was not as positive as it could have been. On the GST front, we do not know. Soon, we will have an update. The government is announcing on it on April 1.

If it comes, it will provide a planning basis for us as well. What we need to see will be the various taxation issues, and how will they be applied in the country. It was a move in the right direction, and it makes our business much easier, and we are very positive about it.

Are you further expanding the dealership base in tier II and III cities?

Yes, we are doing that. A part of our investment and dealer investment goes into the existing larger cities, and here we have reached a level of saturation. The biggest growth we can see is also from tier III and IV towns, and we are continuing with investments in those regions.

You have mentioned that servicing should be the primary focus in your four-wheelers. Can you elaborate one of the strategies that you have on that?

That is an important part for us because as you know vehicles become a lot closer design-wise, and through technical functions. Indian customers are getting used to the fact that the level of service has to rise along with the level of technological development. We have recently introduced the strategy what we call ‘The Digital Service’ in India — the first country outside the US to have this initiative.

The Digital Service tries to incorporate the potential that the customer, through social media or any other means, can have all the information and the contact points. There are service updates through video call, easy Online Service Booking with real-time availability of timeslots at any dealership across the network. The service packages that we are doing is focused on making the ownership of the vehicle less-expensive than it is perceived to be. Mercedes is not expensive to maintain. Due to its inherent quality, it is not as expensive to maintain as people think.

Looking at the regular tweaking done by the Government of India in sense of Bharat IV, Bharat VI, how are you looking at the scenario in the country?

The government has finally come to an understanding that in order to become competitive as a market and overall, tweaking is necessary. Within India, and with the given cost structure, we have to be able to move this country forward, whether it is on safety standards or on emission standards. We were falling behind in it from the past few years, but this is changing rapidly for the better.