Swedish car maker Volvo India seems to finally have woken up to smell the coffee, or perhaps see the writing on the wall. In the 2013 Union Budget, import duty on CBU cars was hiked up to 100% from the current 75%. This steep duty hike has meant that the price of cars imported into India through the CBU route is more expensive than before, a factor that could hit Volvo hard. Volvo sells a range of cars in India and all its cars are brought into the country through the CBU route. So, the import duty hike could hit Volvo hard in two ways.
One: If the Swedish car maker absorbs the price hike, it take a direct hit on its bottomline
Two: If Volvo decided to pass on the import duty hike to car buyers, car buyers are simply expected to shift to other competing brands, brands that have more affordably priced cars that are assembled through the CKD route.
In other words, Volvo India is caught between the proverbial rock and a hard place. To thrive in India, Volvo will have to open an assembly facility through which it can begin CKD operations. With the India-EU Free Trade Agreement yet to be finalized, CKD assembly might be Volvo India’s best bet at the moment. In fact, this strain of thought seems to echo with Volvo India Managing Director Mr Tomas Ernberg, who has been quoted saying,
We are competing against stronger German rivals who have put up a huge distribution network that’s aided by local plants to roll out cars at lower taxes. But we have to import cars by paying higher taxes. So, it’ll make sense to assemble our cars locally to pass on the benefits to our customers and increase our share in the Indian market.
So, Volvo India does know what it takes to survive and thrive in the Indian luxury car market given the fact that its has examples like Audi, BMW, Mercedes Benz and Jaguar-Land Rover to learn from. Volvo next big launch in India is the V40 Cross Country, a crossover that’ll be aimed at the likes of the BMW X1 and the Audi Q3. The V40 will be imported into India through the CBU route and is expected to be priced under 30 lakh rupees.