Mercedes wary of new tax proposals on complete knock-down kit

The new tax proposals on complete knock-down (CKD) kit will have serious implication on luxury car maker Mercedes Benz which may change its strategy to counter the affect, a top company official said on Thursday.
    
"We will have to double our prices if CKD definition is not changed. It will have severe impact on our sales. At the end of the day, we will have to change our production strategy," Mercedes- Benz India, MD and CEO, Peter Honegg told reporters in Hyderabad on the sidelines of a function.
     
"We have to bring in engines, gearbox and assemble here. But it takes time at least 12 plus months to change this. We cannot change out of the blue. Assembling engine is very sophisticated one. We need special equipment," he added.
 
Honegg hoped that some clarity will be there by the end of this month and the government will ease this to some extent.

The government's move will have some impact on the current tax structures on Luxury car makers like, BMW, Audi and Mercedes Benz as they attract a 60% duty on their CKD kits like the BMW 3 Series, the Audi A4 and the Mercedes Benz C-Class if they are shipped into India along with the engine in tow.
     
Individual components like the pre-assembled engine and gearbox shipped into the country separately for assembly into the car manufactured in India will attract only a 10% duty.
     
Honegg said the CKD issue may lead to more localisation of the car manufacturing. "If the new CKD will prevail, we have to do more work here and it will automatically lead to more localisation not necessary local components."

He said currently the localisation part of the manufacturing process involves 30 to 40%.

To a query, Honegg said the financial arm of Mercedes Benz will be launched in the middle of this year and become
operational by the end of the year.

The company sold 5,819 cars in 2010 at a growth of 80%over its 2009 volumes of 3,250 units.

"Market is growing at 14 to 16% and luxury car market is growing much faster than the ordinary car market.
Then whole market grows in the vicinity of 30 %," he said.