Mercedes-Benz India to expand production

The Indian unit of Daimler AG Wednesday said it is investing a total of 3.5 billion rupees ($77.6 million) to double its manufacturing capacity and to build a new paint shop, as demand for its luxury cars and sport-utility vehicles surges.

Mercedes-Benz India Pvt. is spending 1.5 billion rupees to double annual capacity to 10,000 cars from Dec. 15, the company said. An additional 2 billion rupees will be invested to build the new paint shop, with a capacity of 20,000 cars per year.

Mercedes-Benz and rivals BMW AG and Audi AG are producing more cars in India, where increasing disposable incomes are pushing up demand for luxury vehicles in the world's second-fastest growing major economy. Mercedes-Benz posted a 78.5% rise in sales during April-November 2010 to 3,827 vehicles.

"Within only two years of the start of our new facility, we have already exceeded first-shift capacity due to high demand of our vehicles," Wilfried Aulbur, managing director and chief executive at Mercedes-Benz India, told reporters. "We are [now] moving into permanent two-shift operation."

Mercedes-Benz India currently assembles the S-Class, E-Class and C-Class sedans, the Actros heavy truck and two-axle and three-axle buses at its factory near the western city of Pune. It also imports and sells the CLS-Class, SLK-Class and Maybach cars.

Suhas Kadlaskar, director in charge of corporate affairs and finance at Mercedes-Benz India, said the paint shop is slated to start operations in the second half of 2012. Capacity at the paint shop can eventually be doubled to 40,000 cars per year, he said.

Mr. Kadlaskar said Mercedes-Benz India plans to produce more cars locally beyond the current S-Class, E-Class and C-Class sedans from 2013.

"We plan to indigenize more and more products in India, focus upon local sourcing and optimize local value addition," he said.

Local production of cars by Mercedes-Benz will enable the German auto maker to price them more competitively as such vehicles attract much lower tax rates in India compared to imported vehicles.

Mercedes-Benz India currently sources half the parts for the C-Class and E-Class sedans from local vendors. About one-fourth of the parts for the S-Class are also sourced locally.

"We have been making efforts to make India a hub in Asia," Mr. Aulbur said. "We are now looking at leveraging India for global production," he said, without elaborating.

He said the company will further expand its presence in non-metro cities to tap potential demand in newer markets.