Interview with Mr. Eberhard Kern - MD & CEO, Mercedes-Benz India

Interview with MD & CEO, Mercedes-Benz India





Eberhard H Kern, who took over as managing director and chief executive of Mercedes-Benz India a few months ago, has an uphill task ahead of him. The luxury car major is looking to regain lost ground in India, where it has been present for decades. Kern terms 2013 the "year of the offensive" for the company in India. In an interview with Sohini Das, Kern says in the Indian luxury car market, Mercedes Benz plans to tap first-time buyers. Edited excerpts:

How do you see 2013 shaping up for Mercedes in India?
In 2013, we expect double-digit growth over 2012, in terms of sales. We are bringing new offerings into the market---the new GL, a crossover SUV (sports utility vehicle), the compact B-Class diesel and the A-Class in both petrol and diesel variants. We are also working on increasing fascination with the brand by creating programmes around brand experience. However, we do not expect too much from the overall economic situation. The Society of Indian Automobile Manufacturers says the car market would remain flat. The growth has to come from expanding market share. Currently, Mercedes enjoys a 30 per cent share in the country's luxury car segment.

We were negatively surprised by the Union Budget, which imposed higher taxes on SUVs and completely-built units (CBUs). We have to pass that on to customers - there would be a rise from April 1 (prices would rise one to four per cent for locally-built models and up to 20 per cent for select CBUs). Exorbitant taxation is in nobody's interest.

Through the next two to three years, Mercedes plans to launch 15 new models globally. How many of these would find their way into India?
We are looking at every single product and evaluating its market chances. The new GL SUV would be the first to come. For India, our strategy is to have products across the entire range---from entry-level to high-end luxury. The roots of our brand lie in pure luxury; we don't wish to lose focus on the luxury car business. There, you can expect a lot of innovation and a lot of new products.

Last year, luxury cars accounted for 1.2 per cent of the overall passenger car market in India. By 2020, while the passenger car market in the country is expected to grow from the current 2.5 million units to seven million units, the share of luxury cars is estimated to rise to four per cent. By 2020, India would be the third-largest car market in the world, after China and the US. Much of this growth would be accounted for by tier-II and tier-III cities. Currently, our sales mix between metros and tier II and III cities is 50:50.

Earlier, you were based in Taiwan and Russia. How is your assignment in India different?
My first task is to develop a profitable and sustainable business in India. We haven't really lost any market share in India. What happened was quite normal---we have all the three German luxury car brands fighting it out with each other. Our competitors went into the compact SUV segment and they have been successful. As we don't have one on offer right now, they recorded some numbers there. It is difficult to compare, as the portfolios are different. We are quite okay with the segments we are in. But we realise the premium SUV market is growing, and we have taken consideration of the fact that we need to have some Mercedes offerings there as well.

Taiwan is a very developed market; it cannot be compared to India. We have a very good position in the Taiwanese market. There, our market share is four per cent of the total passenger car market. The Russian market is a better comparison. In 2005, when I was head of sales and marketing in Russia, the situation there was similar to the environment in India today. In 2005, we sold about 4,000 cars in Russia, lower than what we sold in India in 2012 (about 7,000 cars). The Russian market has developed very well over the past few years.

Last year, we sold about 40,000 cars there; we are the market leader in that country. The situation in India today reminds me of the situation in Russia in 2005. There is a lot of energy and willingness to develop. A similar story can happen in India.

In the coming years, which customer segment would you target in India?
While the real estate segment accounts for about 35 per cent of our net sales, the share of female customers has already been increasing through the last few years. Today, while our sedans are very often driven by chauffeurs, more and more people, including women, are choosing to drive on their own. Our new cars would have more attractive offerings for women and we see the share of women rising. Women don't want 'women cars' per se; they would opt for cars that suit them better. Also, with the A-Class and B-Class, now, Mercedes has more affordable cars on offer---a number of our products are priced below Rs 30 lakh (ex-showroom). So, we will see a lot of first-time buyers in our portfolio.

How much do you plan to invest in your India operations? Do you have any plans for a sub-Rs 20 lakh car in India?
About Rs 850 crore has been lined up for expanding the Chakan plant. Recently, we expanded the paint shop there (from 10,000 units a year to 20,000 units). We are also expanding production capacity to 20,000 units a year. This would be completed by the end of this year. Last year, we recorded 70 per cent capacity utilisation. The new GL would be made here. In October 2012, we started making the M-Class here as well. India is the first site outside Tuscaloosa in the US where the M-Class and the GL would be manufactured. To expand the network, an additional Rs 550 crore has been lined up by our dealer partners.

As of now, we don't have any plan for a sub-Rs 20 lakh car in India.

In the coming years, which customer segment would you target in India?
While the real estate segment accounts for about 35 per cent of our net sales, the share of female customers has already been increasing through the last few years. Our new cars would have more attractive offerings for women and we see the share of women rising. Women don’t want ‘women cars’ per se; they would opt for cars that suit them better. Also, with the A-Class and B-Class, now, Mercedes has more affordable cars on offer---a number of our products are priced below Rs 30 lakh (ex-showroom). So, we will see a lot of first-time buyers in our portfolio.