Luxury car maker Mercedes Benz today said depreciation in rupee's value coupled with the government's decision to increase import duties on completely built units (CBUs) will hurt the profitability of the company.
The company had to increase prices by 5-6% due to increased duties, Peter T Honegg, Managing Director and CEO of Mercedes Benz India, said.
"The normal price increase will be around 1%. But due to government decisions we had to increase another 5-6% on our cars... Because, this is what the government is asking us additionally. We can offset that only by asking our customers to pay more and they are willing also," Honegg said in a press conference.
He said rupee depreciation against dollar and euro is another cause of concern for European car maker. Though temporarily the company goes for hedging, in the long run it is not possible, he added.
"In the long run, if the rupee stays at minus 20%, then the only option is that we stop selling one or the other car that is not profitable for us or we have to raise prices, which is also not for good for competition. If rupee depreciates, all the European manufacturers will have the same problem," he explained.
He said the increased duties on CBUs will result in huge hike in prices and the issue is being taken up with the government by the Society of Indian Automobile Manufacturers.
During the last budget, the central government increased the customs duty from 60% to 75% for import of completely built units of large cars, multi and sports utility vehicles with cost exceeding $40,000 (Rs 2,000,000), per car.
Honegg today launched the new C-Class AMG Performance edition with added AMG Sports package.
With the launch of AMG performance edition, Mercedes Benz aims to redefine the luxury entry level sedan segment.
Replying to a query, he said the proposed Free Trade Agreement between India and European Union may have a positive effect, if implemented fully.
"If implemented fully there will be major relief in terms of import duties on SKD and CKD. It will change the landscape of the industry," he said.
Mercedes Benz sold 7,100 cars last year and 2,130 units in the first quarter of the year in India.