Telco, Mercedes To Recast Alliance

Mercedes-Benz and Telco have agreed to restructure their two-year-old alliance in India to make passenger cars.

Under a deal being thrashed out, Mercedes-Benz will move out of Telco's facilities in Pimpri, Maharashtra, and set up an assembly plant in Chikhli, near Pune. This plant will manufacture Mercedes A class small cars and C class cars, both of which the German automobile giant plans to launch soon in the Indian market.

The new deal will be effective from February.

Telco is expected to end up as a nominal partner in the tieup after selling off a major portion of its 49 per cent stake in the joint venture, Mercedes-Benz India Ltd. It is not clear whether Mercedes will pick up the entire 49 per cent or only a portion of it.

 

Meanwhile, in a statement issued late yesterday evening, Mercedes-Benz and Telco said they were strengthening their efforts to successfully service the Indian market in the new competitive environment. The statement said they had decided to create a dedicated marketing and sales function within the joint venture with effect from January 1, 1997.

"By reinforcing their combined presence in this way, Mercedes-Benz and Telco aim to strengthen the sales of Mercedes-Benz cars even further, both in the Indian market and export market," the statement added.

Top Mercedes executives in Pune were not available for comment on the restructuring plan as they were still holidaying in Germany. In Mumbai, senior Mercedes sources did not deny the development, but refused to comment. But they did confirm that Mercedes is moving to a new location in Chikhli from Pimpri.

Chikhli is also situated in the Pune industrial belt and will hence benefit from the several ancillary units that are planned with German and Indian companies in the same area.

Mercedes-Benz is now planning an aggressive approach to sell the E class cars that cost approximately Rs 22-25 lakh apiece. Other models will follow. The planned launch of the A class small car in India developed into a major bone of contention between the two partners.

At the time of the launch of Mercedes in October 1995, the small car was supposed to be built jointly in India by both companies. Telco later changed its mind and decided to go on its own by forging independent collaborations for automotive body and engine firms from Europe.

The Telco-Mercedes-Benz venture has been floundering for the last six months due to differences over various issues. Key among them were Mercedes-Benz's desire to raise its stake in the venture from 51 to 60 per cent. Mercedes was also unhappy with Telco over the marketing of its vehicles in the country.

At a meeting in June between Telco chairman Ratan Tata and Mercedes-Benz, Tata rejected the Mercedes bid to hike its stake.

Even a year after launch, the sales offtake from Pimpri was low. From 154 cars sold in September, sales had slid to 21 last November.