By Nitya Pandit
Volvo, the smallest player in the Indian luxury car segment, has recently made an attempt to increase its market share. It has announced its decision to have a local assembly line in India before the end of 2017. The plant will be located on the outskirts of Bengaluru and XC90 will be Volvo’s first ‘Make in India’ model.
This decision by Volvo goes in tandem with the Indian government’s initiative to enhance India’s manufacturing capability. The plan, in effect, will pave the way for Volvo Cars to increase their association with Volvo Group India in a bid to expand the market for their products.
The Indian luxury car market: A story of stagnation
India imposes strict import restrictions and hence, the Indian luxury market so far has been relatively small. The entire market for the past few years has only been able to generate close to 30,000- 35,000 units per year. This is suggestive of the stagnancy in this market. This prevalent stagnation could be arising from the fact that competitors in this market are always making a bid for each other’s market share.
The decrease in growth, at the same time, could have resulted from the ban on the sale of diesel cars in the Delhi-NCR region, which has created an uncertainty within the sector. In addition to this, demonetization in November 2016 added fuel to the fire. However, despite these setbacks, rapid growth in this industry has been envisioned—a growth rate of 15% per annum is expected in the 2015-2018 period and by 2020, the sales might approximately grow to 87,300.
Paving the way forward
With a forecast of rapid expansion in the luxury car market, Volvo’s recent move of introducing a local assembly line might serve as a promising beginning. Witnessing Volvo’s new commitment to the Indian market, its rival players will get attracted to invest further in India. Luxury automakers, Volkswagen AG‘s Audi, BMW, and Daimler AG‘s Mercedes-Benz, would be encouraged to explore the untapped potential of the Indian luxury car market. This can happen by the effective usage of local assembling operations along with an increase in marketing and advertising investments.
From what can be seen, the Indian luxury car market is already on the road to recovery with many car manufacturers taking similar initiatives. Apart from Volvo Cars, Mercedes-Benz has grown its localisation level of the new C Class CDI 220 to 60% and in the near future, cars assembled at its Chakan factory (in Pune, Maharashtra) alone will have 60% localisation. This happened as soon as Mercedes-Benz India’s investment proposal in Chakan got clearance by the chief minister of Maharashtra.
Furthermore, Mercedes-Benz has also made an investment of Rs 1,000 crore in its factory and local sources. It has already started manufacturing main components such as the engine, gearbox, axles, car’s dashboard, seats, tires, and a few electrical components as well. While BMW is looking to manufacture 500 CC motorcycles locally in Tamil Nadu, Audi is also expected to announce its upcoming localisation strategy.
Marking a positive economic progression
Other major players in the market like Audi and BMW have already established local assembly lines in India. Given Volvo’s announcement, consumers will get a greater variety of passenger cars to choose from as their waiting time for Volvo’s XC90 model will decrease. Consumers might not receive lower prices on Volvo’s cars, even though the firm’s import duty will decrease significantly, but this pricing flexibility will allow Volvo to generate a large volume in the Indian Market.
The automobile company can use this money, that it no longer will get taxed on, to invest in technology and product innovation, which would lead to the production of efficient vehicles. This would not only cause a growth spurt in the automobile industry but also address any environmental concerns raised with regard to the manufacturing process. This could also act as an incentive for rival firms to become more efficient.
Furthermore, Volvo’s decision also forecasts that further growth will come from India becoming an exporting hub at some point in the future. Its decision pertaining to the local assembling and selling of cars in India would increase the country’s GDP and economic growth. India also gains benefits from this announcement, as the introduction of a local assembly line will boost investment as well as jobs in the country.
If other manufacturers follow suit, the tags of stagnation and inefficiency shall get disassociated from the Indian luxury car market for good.
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