‘The next phase could be local manufacturing of parts.’

BMW's strategy to outsource assembly of its engines to Force Motors is the first of its kind in the German major's global operations. Robert Frittrang, MD, Plant Chennai, BMW India, talks about the next possible steps in BMW's localisation drive in an exclusive interview with Autocar Professional's Sumantra B Barooah.

I understand think there were 2-3 other companies pitching for the same business. Did Force Motors' prior experience of dealing with German brands (Mercedes-Benz, MAN) help you choose it over others?
Absolutely. It’s very important when we are in markets like India that we have competent partners who have already experience of working together with a premium car manufacturer. For us it is very important, in this case, the engine assembly that the supplier is capable of understanding the premium aspect of our cars and also understands the tough quality standards which we have. Of course, it helps a lot if a supplier already has worked together with a premium car manufacturer. 

This is the first key step towards in BMW's localisation strategy, but components that go into the engine are still imported.  Are you looking to localise the engine also at a later stage?
We are doing this localisation in phases. We follow this strategy worldwide and it helps us to ramp up in a proper way in terms of quality, timing and costs. This was now a phase one of the localisation where we do mainly the assembly process. As you know, we have localised assembly processes of seats, wiring harness, exhaust and HVAC systems, among other parts. The next logical step would be to localise assembly processes of other components. The next phase could be that we even look into localising the manufacturing of the parts itself. Of course, we have to safeguard the quality, timing and the cost. Therefore, this step has to be undertaken very thoroughly and thought through. Of course, this will be determined by (sales) volumes.

What is the kind of volume that would make it viable to go to the next level?
The premium car market size here now is about 30,000-35,000 units a year. We share this premium car market share with our main competitors and that means if you share it, all of us have 10,000 units a year. These volumes are not good enough to have local manufacturing. Generally, we do full manufacturing plants from a volume starting from 30,000 units a year because if you divide the sales volume of 10,000 units or below a year by multiple models – 8 in our case – the volume per model is not valid to go into manufacturing.

We have to prepare ourselves and have to make BMW as flexible as possible in such a market. This is a task to become as flexible as possible in terms of upgrading the whole business very quickly.

BMW made a big splash with the localisation with Sachin Tendulkar. Has it also impacted BMW's market performance and customer perception?
The reception to the BMW brand was always good. Customers give us very positive response in terms of the quality and customer satisfaction, and also with our dealerships. But this got another spark with the Sachin event and the big media response. It was tremendous! I would say it was the biggest media event we had so far. Of course, it set off a new wave for BMW.

What is the duration of the contract with Force Motors?
Force Motors is a regular supplier to us in India now. There is no limitation on the contract. As you know, Force has set up a whole facility in Chennai near our plant so there is also a big investment behind it and we are looking to a really strong and long partnership with Force Motors.

As the market expands, will you introduce more models and more engine options?
Yes, we have already asked Force Motors and it has catered for that. The plot is big enough to enable expansion in the facility very quickly and also in the plot that is available for further expansion.

Given the projection and the market scenario, what kind of capacity would you like to have for the engines as well?

Right now the assembly plant here in Chennai has a potential capacity of about 14,000 vehicles per year. This capacity is given in the Force plant as well without any extension. It is difficult to project volumes for the Indian market, but it is expected that the premium car market will double every three years. This means that the market is projected to go up to 70,000 units in the next three years.

Is BMW India also going to grow in tandem with that?
We can only hope. BMW has a long-term commitment in the Indian market and I can only tell you that we are ready for it. We have the flexibility, the people and we have the will to participate.

If you want to have the hybrid engine powertrain for any of the models, will Force Motors be the base for assembling those as well?
This is not a given. No.  Now if we went to hybrid engines, first of all it has to be in a certain volume as well that we do it locally.

Is this the first example of BMW outsourcing the powertrain assembly business anywhere in the world?
Yes, as far as I know, it is the first external done engine assembly. Right now all our engine assemblies are done in our own plants.

Any plan of exporting engines assembled in India?
No. It is not planned right now as we don't export cars from India. I would not exclude this opportunity but right now it is not our plan.