Daimler Bets Big on India’s Booming Truck, Bus Market

This story appears in the May 14 print edition of Transport Topics.

CHENNAI, India — The world’s largest commercial vehicle maker, Daimler AG, is making one of its biggest-ever bets by pouring $850 million into production and sales operations here, in what is now the world’s fastest-growing market for trucks and buses.

Daimler, which currently does very little business in India, is taking a go-it-alone strategy, betting that, by building a local subsidiary from the ground up, it can adapt its designs to compete successfully against the few companies that completely dominate the domestic market, Tata Motors and Ashok Leyland.

This is a marked departure from the strategy Daimler employed in North America, where it bought out existing players Freightliner, Western Star and Ford’s heavy-duty operations, or what it did when it maneuvered to enter China, which until very recently had been the world’s fastest-growing truck market.

In China, because of governmental demands, Daimler and its Western competitors have had to form joint ventures with Chinese companies in order to access the local market. None of those joint ventures have been financially successful, and Daimler is now working with a new partner, Foton, to sell trucks there, after its earlier partnership dissolved.

Daimler had originally intended to form a joint venture in India, but took full control of the operation when its partner pulled out of the deal at the depths of the recession in 2009.

The Chinese and Indian truck situations have many similarities: their huge domestic markets are dominated by cheap, rudimentary trucks that have a three-to-four year life span. Neither country has a viable used truck market, and domestic vehicles are generally scrapped after their short lives.

As a result of all that, domestic trucks in both countries are generally priced in the $30,000 to $40,000 range, compared with prices in North America and Europe that now often run from $100,000 to $125,000.

At present, China is the world’s largest commercial vehicle market, the United States is second and India is third.

Daimler is betting that by producing nearly all the parts for its Indian trucks in India, it can sell vehicles that are much more advanced than the competition, but at a price premium of less than 10%.

And, since the potential market is so huge, Daimler is confident it can be successful even if it only garners a small share of the market in its early years.

The new company, BharatBenz, is “an ideal combination of German DNA and Indian engineering,” according to Andreas Renschler, Daimler board member and head of its Trucks division, speaking at the April 18 dedication ceremony of the sprawling factory here.

Daimler is hoping to offer a 10% fuel efficiency gain over the competition, which would allow it to trumpet its trucks as a better value over the long haul for Indian fleet owners.

Renschler told reporters at the plant dedication, “Our focus is the modern domestic segment, which has much higher standards than the majority of trucks on Indian roads today . . . . Work life and durability will be much larger than comparable” trucks being sold in India today.

The plant is located on the outskirts of this large city in southeastern India, a region that prides itself as “the Detroit of Asia,” because it has attracted several foreign automobile makers to the area.

One of the unknowns is how Tata and Leyland will respond to this direct challenge. The primary options appear to be either cutting prices and widening the gap between the cost of their trucks and those from BharatBenz, or updating their own designs to compete with the new vehicles from the new market entrant.

Tata currently has a 58% share of the Indian commercial vehicles market, which is now more than 800,000 trucks and buses a year, according to data provided by the Society of Indian Automobile Manufacturers and cited by Bloomberg News.

Leyland, according to Reuters, has about 22% of the market, while foreign companies have a 15% market share.

Daimler officials said they would begin slowly here, producing around 2,000 trucks in the plant’s first year of operation.

The goal is to reach 12,000 vehicles in year two, and 24,000 in the third year, assuming they have enough customers to justify that expansion.

Dieter Zetsche, chairman of Daimler’s board, who also attended the opening, made it clear why the company chose to make such an investment here.

“In the long run,” Zetsche said, “you could say: ‘If you can’t make it here, you won’t make it at all.’ Because a strong position in the global truck market requires a strong position in India.”

India, like China, has been on a road-building binge as it tries to strengthen its manufacturing and transportation infrastructure.