BMW India to Assemble Engines Locally to Avoid 30% Import Duty on CKD Units

Just a while ago, we reported about the Minister Praful Patel requesting Finance Minister to give the auto industry two more years’ time to adjust to the new import duty on CKD units. In the luxury segment which is lead by BMW, Audi and Mercedes, Audi has already stated about its plans to re-think its India plans, while the other two remained mum.

Now it has come to light that BMW has also made changes in its strategy, especially where CKD units are concerned. The newly revised import duty on CKDs has been increased from 10% to 30%, which will significantly affect the price of luxury cars in the Indian market. In a bid to probably avoid this higher tax scenario, BMW recently announced that they would be now assembling their 5 and 3 Series sedan engines and their X1 SUV engine at their Chennai plant.

The President of BMW India, Andreas Schaaf was quoted as saying that right now their CKD operations are realizing the new regulations. They continue to pay an import duty of 10% on CKD units. As per the 2011-12 Budget, import duty on gearboxes, transmissions and pre-assembled engines is fixed at 30%, compared to the earlier 10%.

He added that about 50% of their engines are assembled in India, which is taken as locally produced. The company will be gradually begun completely manufacturing their vehicles once a sizeable volume is reached. According to reports, the company assembles around their 5 and 3 Series models and the SUV X1. The ex-showroom cost of the 5 and 3 Series sedans begins from Rs. 37.6 lakh and Rs. 24.4 lakh in Delhi respectively, whereas the SUV X1 has a starting price of Rs.22.4 lakh.

Schaaf was also quoted as saying that they are of the belief that no regulation should be changed overnight. It should instead be implemented gradually in a planned manner. He also added that are part of SIAM request for extending the timeline. He expressed disappointment that the government had not consulted the auto industry before they decided to hike the import duty.

Schaaf also added that BMW will begin assembling their SUV X3 at their Chennai facility from June onwards as well as assess options for launching smaller models like the hatchback mini and 1 Series in the future in India. BMW’s major rival, Mercedes Benz, reportedly began assembling transmissions and engines for their E and C Class sedans at their Chakan facility. They are however producing their S Class sedan after paying a 30% custom duty, and therefore, they are likely to increase the price of this model by around Rs.8 lakhs by the coming few weeks.

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