Auto biz challenging; eye long-term profit: Mercedes-Benz

In this edition of CNBC-TV18's The Forbes India Show, Eberhard Kern, MD, Mercedes-Benz India says that the six months since he assumed charge were full of challenges such as the slump in overall auto sales and the depreciation in the rupee .

Also read: The luxury car battle: Audi's plans to stay on top

Eberhard Kern adds that fall in the value of the rupee against dollar has started to impact margins and highlights that a decision will be taken to change revise pricing by July or August.

The growth of rivals Audi and BMW do not disturb Kern who says that he remains focused on establishing a sustainable and profitable business at Mercedes-Benz India.

Below is the edited transcript of the show on CNBC-TV18

Q: Your first six months in India has been a pretty eventful — auto sales slumped to record lows, the rupee has sunk almost 9 percent in the last two months and the finance Minister paid particular attention to the luxury auto segment during the Budget. How are you faring?

A: Yes, it was quite a challenging time since I arrived in December. The past six months have not only been challenging, but fascinating as well. The tax impact was not planned and the Budget this year took us by surprise. Indian customers have to now pay more than 50 percent in taxes.

Q: How badly has the fall of rupee hurt you?

A: The euro is much more important to us than the dollar as we import most of our products, kits or parts from the euro zone. In December 2012, the euro was around 70 and we established a defensive strategy for the year after taking into consideration a probable rise of the euro to rise to 74 against the rupee. But now it is at 78-79.

This of course directly impacts our costing which involves purchasing in the euro and selling in the rupee. Our  profit margins will start to face some pressure. So far, we have been able  sustain the price level, but if the rupee continues to wobble over the next few weeks or months, we may have to re-examine our pricing as well.

Q: How long will you wait before you take a decision?

A: We will have to come to a decision latest by July-August.

Q: Your stint began when Mercedes-Benz in India lost its position at the top to rivals Audi and BMW. Was restoring the company's position one of your goals when you took over the helm in India?

A: No, there was no such goal this. Our goal is to establish a business that is sustainable and profitable and we have formulated our plans accordingly. We face competition everywhere in the world and that includes India as well. Yes, we are ambitious but we follow plans of our own.

Q: Let us talk about those plans. Will you be able to beat the competition with the launch of the A-Class?

A: We have been in this business for years. The E-Class, as you mentioned correctly, is one of our most important models today. Of the over 2,000 cars we sold in the first quarter which was 5 percent better than last year's Q1 sales, the sales of the E-Class contributed 40 percent. So it is one of our most important models.

Overall, we are the leaders in all the segments that we are present in. There are also segments in the market that we were able to develop quite successfully in the last one-to-two years such as the mid-sized luxury SUV and the small-sized luxury SUV. As we do not have any products in those segments right now, we are not able to participate in them.

Q: Why did that happen? Was it a lack of foresight or planned?

A: There are different reasons for this. In the mid-sized luxury SUV segment, we have the Mercedes-Benz GLK, but unfortunately the only model on offer is the model with the left hand drive.

We hope this will change with the successor model we plan to introduce in two year's time. Though we do not have a product in the small-sized SUV segment right now, you may recall that a few months ago at the Shanghai Motor Show we exhibited the Concept GLA.

This model had a very, very positive response in the Indian market as well. So I am quite confident that we will be able to launch this model into India in one-and-a-half year's time.