One of the key strategies followed by most auto majors these days for cost reduction is localization. Players like Maruti Suzuki, Honda, Hyundai and Toyota have set up their own petrol engine manufacturing plants in India to reduce the cost of production and very soon they plan to set up diesel engine plants too. German auto major, Volkswagen group is definitely not going to stay behind in the race. The company has announced plans to set up an engine plant at Chakan near Pune.
“There is a plan to have our own engine plant in India at the group level. It all depends on discussions with Maharashtra government on the tax (VAT) issue,” Michael Perschke, Head, Audi India, said.
Currently, the automaker imports its engines from Germany and pays a hefty customs duty of 30 per cent on imports. It imports both petrol and diesel engines ranging from 1200 cc to 3000 cc. The new plant which will need an investment of Rs. 3600 crore and would cater to brands such as Volkswagen, Skoda, Audi and Porsche. These locally manufactured engines would give Volkswagen, Skoda and Audi cars a price advantage over their rivals.
Previously, the company had planned an investment of Rs. 2000 crore to set up a plant in Chakan. Due to the then Maharashtra’s Government policy on changes in VAT imposition, the company with held its plans. Earlier, the Government was refunding the VAT paid on all the vehicles sold by companies having factories in the state. As per the new rule, the Government would refund VAT only on vehicles sold within the state. Now, the company is planning to go ahead with its plans and reap the benefits of localization.
Source – MyDigitalFC