NEW DELHI, Feb 4: In a sudden volte face, BMW AG of Germany has decided against setting up a manufacturing facility in the country. Instead, it is planning only an assembly line for its top-of-the-line 5 series luxury cars at a drastically pruned investment of Rs 75 crore.BMW had earlier signed an agreement with the Munjals for a joint venture company, BMW India, which envisaged an investment of Rs 300 crore.
Significantly, the company has also filed a memorandum of understanding (MoU) with the directorate general of foreign trade (DGFT) for a licence to start operations in the country.
The company has indicated to the government that it would meet all the conditions as stipulated under the automobile policy. According to the MoU, the company has stated that it would achieve an indigenisation level of 64 per cent in three years. The venture intends to balance forex outgo by undertaking exports. The proposal has not been cleared by the DGFT as yet.
Sources said that BMW India will also undertakeassembly of the Rover `Discovery' jeep, a 4-wheel drive, besides the 5 series model which will be available in both the petrol and diesel versions. BMW has recently acquired Rover in the UK.
In the first year the company is planning to produce around 750-800 units, followed by 1,500 units in the second year. The installed capacity of the assembly plant is 4,000 cars as against the proposed capacity of 10,000 cars each year. The plant would be located at Greater Noida in Uttar Pradesh.
Sources also said that the joint venture would either source components from vendors or import them from overseas. The project at this stage does not envisage the setting up of a press shop, body shop or paint shop. The company has informed the Foreign Investment Promotion Board (FIPB) about the change in the equity structure of BMW India from 51:49 to 50:50. The debt-equity ratio of the project would be 1:1. According to sources, the change in the company's plans has come in the wake of the new automobile policy. Observerssaid the company has effected a change in the equity structure to circumvent the policy which lays down a minimum investment of $50 million in three years. This condition applies only when the foreign company holds a majority stake in the car venture.
BMW was not keen to invest heavily in the venture as it does not perceive a big market for luxury cars. The luxury car market has been the worst hit in the ongoing recession in the industry.
The progress of the car project has been slow till now as it was expected to start production two years back. The company expects the process to be expedited now as it has taken a decision on the equity structure and the nature of operations in India.
INSIGHT
unnerved by competition
With competition hotting up in India's car market, BMW AG has turned cautious. It is planning to assemble just 4,000 cars annually in three years, with an indigenous content of 64 per cent. BMW is promising to cover its import content with exports. The DGFT clearance hasyet to be firmed up.
The German car major has thus retreated from its ambitious programme to manufacture 10,000 luxury cars a year at the proposed plant in Gurgaon. The planned investment of BMW India, a joint venture with the Munjals, will come down to Rs 75 crore (less than $20 million) from Rs 300 crore (over $75 million).
BMW India will be a 50:50 joint venture. The foreign car major has reduced its equity stake from the originally proposed 51 per cent. A foreign majority stake requires a minimum investment of $50 million. BMW, which has acquired Rover in the UK, will also assemble Rover jeeps at Gurgaon.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
