German carmakers in a fray after tyre imports from China banned

The local operations of Mercedes-Benz, BMW, Volkswagen AG and its Czech unit, Skoda Auto, could be hit in the coming weeks as India has restricted imports of certain types of tyres used by these companies to cut its reliance on China.

Curbs on imports from China have worsened the situation for German carmakers in India.
The local operations of Mercedes-Benz, BMW, Volkswagen AG and its Czech unit, Skoda Auto, could be hit in the coming weeks as India has restricted imports of certain types of tyres used by these companies to cut its reliance on China, two people directly aware of the development said.
These firms have reached out to the German ambassador to India to resolve the issue. A meeting between embassy officials and government representatives was held last week.
After border tensions with China soared in June, India’s Director General of Foreign Trade put imports of certain types of tyres under the restricted category. This means vehicle makers will now need licences to import such tyres. The German carmakers are, however, yet to secure the licences from the government.
Most premium or luxury carmakers have substantial quantities of imported content because they lack economies of scale in India. Most of them also follow a global sourcing model and decide to localize manufacturing of parts based on the opportunities in a particular market and the potential for exports.
“Most of these premium vehicle manufacturers are reeling under the impact of covid-19, which has dragged volumes to the bottom. Now, a delay in production might cause financial problems. The situation is serious. Otherwise, they wouldn’t have gone running to the Germany embassy for help,” the person said, requesting not to be named.
To curb rising imports of tyres from China, the Indian government imposed anti-dumping tariffs on such tyres in the last two to three years to protect local manufacturers.
“Automotive supply chain is complex and if one part is not available then manufacturing is not possible. Most of these OEMs have different sourcing hubs based on their global plans and limited volumes in India do not justify any investment in this category,” the person said.

 

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“Bringing in technology and pushing for Make in India is an awesome step and in right direction, too. But I think at the same time, the authorities need to be systematic and give a road map rather than implementing such policies overnight. All these steps will otherwise lead to business disruptions. Especially, the low volume players will get hurt badly and these sudden steps can actually hurt the reputation of Brand India,” said Puneet Gupta, associate director, IHS Markit.

Growth in sales of premium passenger vehicles in India has remained subdued in the last three years because of a continuous increase in import duty on components, which led to an increase in the price of such vehicles.

In the six months to 30 June, Mercedes-Benz, the largest luxury carmaker in India, sold just 2,948 vehicles amid an economic slowdown.

 

Source: Live Mint