‘Our focus is profitable growth, not volumes’ - The Financial Express

‘Our focus is profitable growth, not volumes’

The president of BMW Group India and the MD of BMW Plant Chennai share with Vikram Chaudhary how the company has grown beyond merely chasing numbers

By: | Updated: March 21, 2016 12:47 PM

Interview: Philipp von Sahr & Robert Frittrang

The i8 is to BMW what the Prius is to Toyota and the Model S to Tesla. But unlike most other hybrid and electric cars, the i8 is a sports car with the consumption and emission values of a compact car. Add to that a futuristic design that may not look out of place even in 2050! “I believe India should be proud to have the i8,” says Philipp von Sahr, president, BMW Group India, as I meet him at the BMW corporate office in Gurgaon near Delhi this week. He is joined by Robert Frittrang, managing director of the BMW Plant Chennai.

“Every pioneering achievement has a story. In the case of the i8, it began in 2008 with the launch of Project i—the objective was the reinvention of urban mobility. This gave rise to the Concept i8, which demonstrated in near-production-ready form where the development would lead. Then all our Vision EfficientDynamics technologies were united within this vehicle, an intelligent lightweight concept had been implemented, and the idea of a sports car for the future was detectable. The series production of the i8 marks the current peak of the development,” von Sahr takes me through the journey of the car that will be launched in India on February 18.

The i8, I know for sure, won’t be made in India, at least not in the near future. But I ask Frittrang what’s happening at the BMW Chennai plant. He says BMW has partnered with major auto component suppliers for sourcing of components and, with these partnerships, the level of localisation at the BMW plant in Chennai has increased from 20% to 50%.

This news means that, over time, more BMW models could be made in India. Von Sahr clarifies, “While we locally produce eight models—the 1 Series, 3 Series, 3 Series Gran Turismo, 5 Series, 7 Series, X1, X3 and X5—we will add more products to the line-up only if there is demand. However, for these eight models, we now don’t have to wait for parts coming in from Germany or the US, reducing any waiting periods for these cars. It will also accelerate the servicing process of our cars.”

A rise in localisation levels theoretically means lower-priced BMW cars over a period of time. Von Sahr explains, “We will set higher benchmarks in quality standards, and in cost-optimisation and value addition. The localisation will lead to stronger price stability in the long run, which is good for us as well as the customers.”

BMW was the luxury car market leader in 2009, 2010 and 2011. Then it quietly exited the race. As far as 2014 sales figures are concerned, the only apparent fight was between market leader Audi (10,851 unit sales) and Mercedes-Benz (10,201). BMW sold 6,812 units, including 403 units of the Mini, during the year. “We reacted to the economic situation of the time. The exchange rate was not good for profitability and there was a lot of pressure on retaining the leading position. So we decided to focus on localisation which would lead to sustainable and profitable growth. We also decided to focus on customer satisfaction, where we are currently leading,” von Sahr says.

He further explains that BMW, in fact, witnessed an unprecedented price war from competition for market share. “But we make our price decisions with all due care and consideration. They must pay off in the long run. They must lead to a win-win situation—both profitability and growth. Yes we want to increase our sales volume, but not at any price. We don’t want to be number one in discounts,” von Sahr says. “It’s better to lead in customer satisfaction than in customer acquisition.”

Competitors are betting big on the Indian compact luxury sedan segment—both the Audi A3 and Mercedes-Benz CLA-Class are in demand today—but BMW, it appears, hasn’t seriously given a thought to this segment. “We have a hatchback, the 1 Series, priced slightly lesser than the cars you mentioned,” von Sahr says. “One of its jobs is to attract customers of high-end Honda, Hyundai, Skoda cars into the BMW fold, which it is doing quite well.”

But will the company bring the 1 Series sedan to India, which was recently spotted being tested in China? “We may bring it to India in the future, but then our 3 Series and 5 Series sedans are doing very well. They have given us loyal and repeat customers. Moreover, the low-end luxury car market is not very profitable,” von Sahr says.

Currently, BMW India has 37 sales outlets and, by end of 2015, it will increase the number to 50, unlike its German competitors, both of which already have over 60 dealerships. “We don’t compromise on dealership quality. If two dealers in a particular region are doing a good job and are accessible to the entire region, why do we need four? More dealers in a particular region can also lead to a price war, which is not good for a premium brand such as ours. Our another focus is making our presence felt across the country. Soon we will enter the non-metro cities of Rajkot, Vijayawada and Coimbatore,” von Sahr says.

The Tamil Nadu government, in December, raised electricity prices substantially, affecting manufacturing plants in the state. Frittrang says the company knew it was coming. “However, our focus on sustainability has ensured that we have not been affected much. Chennai gets over 300 sunny days in a year, so we constructed a solar roof which provides us electricity. Today it meets 8% of our electricity needs. In addition, over the last two years, we changed all the lamps into LED lights, further reducing our electricity needs,” he adds.

The iconic brand Mini sold just 403 units last year. “India is the 100th country that Mini made its home. The Mini is more than just a car, it is a personality on wheels, a fashion statement, a way of life,” von Sahr explains. Why will a niche product need numbers, anyway?

The Indian luxury market currently stands at 30,000-odd units. “It is still at a nascent stage, but it has immense potential with the rising purchasing power, the growing aspiration for luxury brands and the evolving lifestyles of Indians. We foresee untapped potential from tier-1 and tier-2 cities,” he says.

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