For Daimler, it's time to step on the gas

In September last year, Daimler India Commercial Vehicles, a fully-owned subsidiary of Germany's Daimler, launched its first truck for the Indian market. The new model marked the beginning of what may be the most ambitious plan of any truck maker anywhere in a slowing economy.

Truck production in India dropped 10.76 per cent in April to February 2012-13 compared to the previous year.

Still, Daimler is betting big on the country, enthused by sales numbers of its first truck BharatBenz. In the three months since launch, Daimler has managed to sell 1,098 trucks, and over the next year- and-a-half, it plans to launch one new model every month for 17 months. Its strategy is to reach out to the Indian buyer by being "as global as possible", while at the same time "localising the vehicles wherever needed", says a company official.

Analysts says it is too early to say whether it will succeed in its plans against the well-entrenched position of Indian manufacturers like Tata Motors, Ashok Leyland and AMW. But, for now, Daimler is speeding ahead and claims to have captured a sizeable share in some markets. In Kerala, for instance, it claims to have snatched 30 per cent market share.

Been there before
India is not new to Daimler. The first Indian truck on its roads in 1954, the Tata-Benz, had the company's imprint on it. It was produced and sold by Daimler along with the Tatas.

However, in the subsequent decades India took a back seat in its priority. It was only about five years ago that it began to look at India once again.

"India was seen as the next growth market after China," says Marc Llistosella, managing director and chief executive officer of Daimler India Commercial Vehicles. The company's plan was to join hands with the Hero Group, but it didn't work out with the slowdown making the prospects look less than bright. "It turned out positive in the long run," Llistosella wrote in a column for an automobile magazine.

Daimler's India strategy is focused on localisation. Nearly 85 per cent of the parts in BharatBenz have been sourced locally. Cost, obviously, is the reason. BharatBenz rolled out from the company's Rs 4,400-crore facility at Oragadam in Chennai. The other 17 models, with a capacity ranging from 6 to 49 mt, will also be produced at the same plant.

In terms of design, too, Daimler has kept the local requirements in mind. In 2010, it dispatched a German team to Asia's largest flower and vegetable market in Koyambedu in Chennai to figure out what Indians wanted in their trucks. Every day thousands of tucks come to this market from across the country to carry the cargo to various parts of the country. The team often visited the market at 3.30 am to understand what safety issues the drivers had. They found out the drivers had little interest in safety aspect of design such as collapsible steering, air bags and others. They reckoned the drivers relied on gods and talismans such as lemons and red chillies strung in black ropes to keep them safe.

The result of the research was a flatter dashboard for the drivers to mount the idols of their favourite gods. Of course, the trucks also included all the other safety devices.

Georg Weiberg, the head of product engineering, says its trucks are a collaborative effort of German and Japanese engineers, who brought in technology, and Indian engineers who provided local expertise.

Cost factor
This has translated into higher prices. Daimler trucks cost approximately 10 per cent more than the trucks by Indian manufacturers. However, the company says since it offers better fuel efficiency, the total cost of ownership is less and that would ensure sales are not impacted. "The cost of ownership of our products is by far the lowest," says company spkesperson Florian Laudan.

It counts several other advantages too. For instance, its trucks require an oil change only after 1 lakh km as against 50,000 km for most trucks on Indian roads.

Llistosella says in the next 17 months, the company will launch trucks in all three categories-light, medium and heavy commercial vehicles-targeting everyone from small-time businessmen to construction companies.

The company is especially betting on what it calls the "modern-domestic consumer". The segment entails applications like reefer-trucks, containers and mixers.

That's also the reason why it is not worried about the slowdown in the Indian market. Laudan says this category is a new one, which is taking to its trucks for the first time. "We are starting small and this new category will try new products independent from the market conditions," he says.

To back its new trucks, it is gradually building a dedicated network of suppliers close to its plant. At present, it has 450 suppliers from whom it sources engines, gearboxes, cabins and axles. Around 40 per cent of the supplies come from within 20 km. The strategy, while it has allowed the company keep its costs low, has also helped it lay the ground to use Chennai as an export hub for the future.

Daimler has not kept it a secret that it wants to take benefit of India's free trade pact with ASEAN to export trucks to Indonesia. Laudan says Daimler's initiative to begin with such infrastructure enables the possibility of further expansion in terms of markets.

Meanwhile, it is working to expand its distribution network. Listosella says it will increase the dealers to 80 by the end of the year from 32 now. To take on rivals, Daimler has tied up with ICICI Bank, HDFC, Kotak Mahindra Bank and a host of other banks, besides its own captive financial arm, to offer loans to its customers.

Challenges ahead
Still, penetrating into India won't be easy. Kapil Arora, partner (advisory services), Ernst & Young, says the domestic players have a wider network of sales and service centres and catching up will not be easy. Also, emergency breakdowns of Indian trucks on highways can be serviced by local mechanics, but Daimler trucks will have to depend on their own mechanics. Pricing may be another factor. The upfront cost of buying a Daimler truck is higher than the Indian ones.

The Indian players don't seem too fazed but agree Daimler will not be an easy competitor. AMW Motor President A Ramasubramanian says, "It doesn't matter whether you are an Indian or a foreigner. If your product is good, you will survive".

However, Daimler's entry has not gone unnoticed at Tata Motors and Ashok Leyland. Tata trucks based on the world truck platform the U-series of Ashok Leyland are positioned to take on Daimler.

"Existing players have already been driven to change. They are now bringing new products and becoming aggressive," Listosella wrote in the column.