Venkatachari Jagannathan reports on BMW's India strategy.

Chennai: The Indian luxury car market is all set to see interesting times with the entry into India of the Munich-based Bayerische Motoren Werke Aktiengesellschaft, or simply BMW. With the chanting of the Gayathri Mantra, BMW India Pvt Ltd, wholly owned Indian subsidiary of the German luxury car company inaugurated its €20-million assembly plant at Mahindra World City near Chennai.

The 1700 units per annum plant has 120 workers including four women, and will roll out three variants of BMW 3 series and four variants of BMW 5 series cars. "The Chennai plant comprises an area of 89,000sq metres including a production area of 13,000sq metres. It took us just 12 months to set up this plant," says Frank Peter Arndt, director, production, BMW.

The domestic luxury car market is estimated at around 3,500 units per year and is expected to go up to 10,000 units by 2013. Curently, the Pune-based DaimlerChrysler India Pvt Ltd, that manufactures the Mercedes brand enjoys over 50 per cent of current market.

Says BMW's senior vice president, Asia (excluding China), Pacific, Africa, Eastern Europe, David Panton, "Our target client group are young upcoming entrepreneurs, new rich and corporate executives. Our client profile predominantly is young people who want sporty looking cars."

The Mercedes, as a brand, has been traditionally associated with rich and the conservative. It is an aspirational car with serious looks for the upwardly mobile. While the entry of BMW is sure to eat into the sales of the Mercedes, analysts do not expect the BMW to dent its rival substantially.

BMW's entry with an assembly plant in India increases the options for Indian customers to choose from the luxury car brands that have traditionally been between the Mercedes, BMW and Audi and other models within similar price bands like Toyota's Camry, Skoda's Superb and Nissan's Teana, due for launch .

Though these cars do not come in the ultra premium category, they offer similar interiors and legroom at a lower or similar price to the base model of luxury cars. Only time will tell whether Indian buyers opt for practical solutions or go for the 'brand'. Interestingly, even buyers in this segment are conscious of fuel economy and cost pf ownership, which is evident from the diesel variants launched by these automakers.

What is clear is that the new developments would surely increase in the overall market size for luxury cars. While in percentage terms DaimlerChrysler might lose the market share, in absolute terms there will be an increase in the number of units sold. Despite several attempts, DaimlerChrysler India's executives were not available for comment.

At the global level the premium car market is expanding and is viable, remarks Dr Norbert Reithofer, chairman, BMW. "The growth is two times better than mass-market cars. In South Africa the market grew and we increased our capacity there. Similarly, in China and Taiwan we sold more cars. In China we would reach the full plant capacity by 2010."

Though the first year sales target for BMW India is 1,200 units, it is less than one per cent of BMW's Asian sales of 1.36 lakh vehicles in 2006 and the current year's target of 1.5-lakh units. Of the 11.85 lakh BMW models sold globally last year, over 5.08 lakh were its Series 3 and 2.32 lakh were the Series 5 cars.

In India the BMW Series 3 and 5 will be rolled out in equal numbers, with one third being the diesel variant. The BMW 5 series will be launched in June 2007.

Dr Reithofer says, "This plant is part of our strategy to enter the Indian market. The goal is to seize all opportunities in this segment. Production capacity always follows the market."

At the plant the company maintains 1.5 months inventory level or around 180 car units. The lead-time for getting the CKD kits is around four months. The company's central warehouse is located in Mumbai from where parts to the dealers are sent for after sales market.

He also said, "Starting with the assembly line for completely knocked down (CKD) units we would later set up a body and paint shop. The next step is to have a component sourcing department for the Indian as well as the German plants and lastly set up a research and development (R&D) unit here."

Adds BMW India president Peter Kronschnabl, "The Indian plant will cater to the 90 per cent of the BMW's market demand in this country. The balance 10 per cent of the market (BMW 7 and X series) is catered through imports."

In terms of pricing strategy in India, BMW has priced its cars higher than that of DaimlerChrysler. Says BMW India president Peter Kronschnabl, "The price is related to the value the customer gets and a BMW car owner gets more value for the price he pays. For instance the 320i model comes with automatic transmission." The BMW 3 series starts with a price of Rs26.7 lakh and the 5 series is priced at Rs42 lakh.

But with the seats being the only localised part (the door panels will be localised in the distant future) and with higher insurance premium, owing to the higher price of the vehicle, will the cost of ownership of the BMW be higher than that of the Mercedes?

Kronschnabl does not think so. He asserts, "Our total cost of ownership is low and our car price is reasonable. BMW India has already booked orders for couple of hundred units. In our case booked orders are confirmed orders unlike with other car companies."

If the buoyant demand continues the company expects to break even in the second year of operations at 2,500 units.

The company has planned mainly below the line promotions. With eight dealers now in place and one more to be added this year, Kronschnabl says that by 2009, the company will have BMW dealers in all the major Indian cities. For financing the dealers BMW has floated BMW Financial Services Company.

The one distinct advantage that DaimlerChrysler India has over other ultra luxury car makers in India is its market knowledge and experience. The company has been in India for over ten years. However, being the first mover also has its disadvantages. For Instance, DaimlerChrysler did the hard work of growing and conditioning the market for super premium brands, which has enabled its own rivals to cash in on.

The company has planned mainly for below the line promotions. With eight dealers now in place and one more to be added this year, Kronschnabl says that by 2009, the company will have BMW dealers in all the major Indian cities. For financing the dealers BMW has floated BMW Financial Services Company.

Meanwhile BMW India will soon start its market feasibility study in India for its famous small car MINI. According to Kronschnabl, ``MINI is not just one more car from our portfolio but it is a unique brand.'' Based on the market feedback the company would bring MINI to India by 2009. The distribution network will be separate for the small car though some of the existing dealers will be allowed to sell MINIs. However the company has no plans for launching its premium motorcycles.