German carmaker BMW has unveiled its first assembly plant in Madras (Chennai), India's fourth largest city.
Local assembly of the 3-series and 5-series should help BMW avoid a 60% import duty and other taxes that make cars shipped from abroad prohibitively expensive.
Even so, BMW expects to remain a niche high-end player in a market dominated by small cars produced by local companies such as Maruti, Tata and Mahindra & Mahindra.
"When it comes to firm orders with down-payments, we have a couple of hundred," said Peter Kronschnabel, president of BMW India.
Mercedes, BMW's main rival in India and the absolute leader in the luxury segment, has been assembling cars in India since 1993 and currently sells about 2,000 cars per year.
Massive potential
"If we have the customers, we can produce 10,000 cars at this plant, no problem"
The luxury segment is puny in India, accounting for no more than 0.03% of the market.
Nevertheless, high-end carmakers see it as crucial to build a presence here due to the market's anticipated growth.
In 2000, only five in every 1,000 Indians owned a car; by 2010, the number is expected to have risen to 11 per 1,000. By 2010 there could be 13 million cars on India's already crowded roads, up from just 5 million in 2000.
"We want to benefit from this growth potential, but we also want to make an active contribution to this growth," said Norbert Reithofer, chairman of BMW's board of management.
"Our plant here in Chennai is a clear commitment to India as a business location," said Mr Reithofer.
"Chennai has a developed infrastructure and it benefits from having parts suppliers nearby," added Frank-Peter Arndt, BMW board member in charge of production.
Cautious start
Initially, BMW has invested 20m euros in its Chennai plant and BMW India's headquarters in Gurgaon outside Delhi, creating 600 jobs directly and a further 600 indirectly through its service and dealer network.
Almost all the parts will be shipped in, including the engine and body, although seats for the 3-series and door panels for the 5-series will be produced locally.
It aims to assemble 1,700 cars per year at the plant in the medium term, though this could rise if demand grows, said Mr Arndt.
"If we have the customers, we can produce 10,000 cars at this plant, no problem," he said.
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