High growth drives Volvo to weigh local assembly options

Two consecutive years of high double-digit growth in the Indian market has prompted Swedish luxury car maker Volvo to look at expanding operations with a possible local assembly. All Volvo cars sold in India are now imported as completely built up units and attract 120 per cent in the form of various duties. Local assembly would bring duties down to 70 per cent and help the company grow.

“We would look at ways to start local assembly. There are different options for starting production. One of the ways could be through a third party with an existing infrastructure who could give us support. Of course, lot of our people will be involved in the process,” said Tom Von Bonsdorff, managing director, Volvo Auto India.

Volvo sold about 1,600 cars in India in 2016 calendar year, up more than 12 per cent over its 2015 volumes in spite of a flat luxury car market that was hit by the diesel ban in NCR and demonetisation. Volumes had grown by about 18 per cent in 2015. The company said the first quarter of calendar year 2017 has also brought double-digit growth. “The Q1 had a double-digit growth and we look to accelerate it. We should hopefully do 2,000-plus units this year,” Bonsdorff added.

The company, which competes with the German trio -- Mercedes, Audi and BMW -- will complete 10 years in India later this year. It sells significantly lower volumes than the German brands. Mercedes, for instance, sold over 13,000 vehicles last year. The three German companies have local manufacturing units and in many vehicles enjoy a high localisation of 60 per cent. “There must be a reason why so many companies do local assembly here. It could improve margins,” he said.

“We have been able to attract customers who are probably looking for an option besides the German brands. We see us growing faster than the three,” he added. Bonsdorff said the sustained growth in India is the best tool for him to market investments (from the headquarters) into India.

“The company is starting to feel very confident about India. It is analysing the right time of entry...we are lobbying with our top management to take a final decision. No decision on investment has been made but I am hopeful of it coming soon,” he added. Volvo, Bonsdorff claimed, is not losing money in India even though it is in an investment mode.