[V.Narayan]

Originally Posted by GKR9900

When you combine that with the following quotes, I can't help but feel fishy about the way the German pricing goes.

This after accounting for the cheap labor and material costs that a country like India offers. I can't really see a reason for this difference. Would be extremely grateful if someone can educate me on what I'm missing.

Precisely my point. If the inflated prices are solely because of the outrageous tax structure, how are Volvos able to price cars the way they do?

How can any pricing be fishy in a competitive free market where the producer/trader is free to sell at whatever price suits him and the buyer is free to buy or refuse to buy at that price.

Please don't be under this mythical illusion of India being a low cost of production country. The business I own and run operates industrial services in 9 countries including 4 in the west and trust me after Dubai, India comes next in cost of infrastructure, electricity, water, land, licenses, fending off the inspector raj, etc All this thanks to the vested interests of our political class and sheer incompetence & shabby attitude of our bureaucracy. The only thing cheaper in India is the lower and middle spectrum of manpower - that's all. This is not some journalistic view this is what I see in my ledger each month.

How do you know or don't know if Volvo is practicing a market entry strategy. Booking a loss on a few thousand cars a year is well within their capacity to bear. I asked this question in November 2014 to one of the Volvo sales managers (of the company, not the dealer) and he actually said it is their strategy to price moderately in order to break into the market.

Originally Posted by Jeroen

What lack of understanding? What's fishy? They can price their cars any which way they want. Its their decision/pricing strategy and your free choice to buy or not.
My wife buys cars and she hasn't got a clue as far as I'm concerned. She understands what she likes and doesn't.

I get this impression that some members are turned off because they believe these Germans are making a big profit here in India. Again, who am I to judge anybody else's criteria.

Thank you for the balance and maturity Jeroen.

Originally Posted by thatsdileep

Does this indicate that Manufacturers are making better margins with localisation than sharing the benefit with the customers?

The manufacturers (like all other companies that produce goods and services) have many constituencies to address and share their operating profits, cash flow and productivity with - first and always first the shareholders ie the risk investors, then the creditors, after that the rest flow ie the employees and managerial leaders, the tax dept who in India re-interpret rules all the time to extract more tax today and let you fight to get it back 3 years later, the channel partners and of course importantly the customers. I would be very happy if the German trio and other car makers make healthy margins for then they will invest more, create more jobs and pay more taxes to the Govt.

Originally Posted by lurker

Only a drop in sales, or lesser number of suckers generated per year (excuse me this but this is exactly how German trio see their customers). Their volumes are also kept knowingly low so that they can operate on higher profits with lower volumes at lower risk. Needlessly, for some reason they are operating at a small footprint, probably to pack bags and run or something at slightest provocation.

The Germans make great cars, but I also feel they have no business getting into our social milieu in this fashion.

Kindly check what German newspapers and Angela Merkel think/speak about India, check out any German news channel like DW or German rag and they think India is a filthy third-world poverty stricken urban litter. Check out how the German professor in some berlin/Leipzig university thinks about 'Indian men' (she thinks they all are rapists and decided not to enroll Indian male students in her class).Then why the hell should we be so accomodating about them, high time the competition commission cracks down on them. Granted though, that they make great cars.

Esteemed Sir, I can only say these are sad comments coming from a Team BHP member. We cannot judge a nation and its 60 million citizens on the basis of odd comments by a few. I am sure we can find a dozen lousy comments by Indian persona against Germany or UK with ease. It does not mean 125 crore Indians are like that. I would be more willing to listen to your comments that are based on personal experience than regurgitating the tabloid press. If you have invested in Germany, done extensive business with them, lived in their country for some period of time, employed Germans then your views will be interesting to listen to. Sorry to emphasize this but we are here to discuss cars not vomit on a nationality.

By the way I personally chose not to buy an E class due to the lousy A.S.S. feedback from friends and instead bought a Volvo XC60. I am happy the German trio, along with other car makers, chose to invest in my country, create jobs and bring higher standards of automotive engineering to India. They have the right to price their products freely and we have the right to buy or not buy them (like I choose not to).

[thatsdileep]

Originally Posted by V.Narayan

The manufacturers (like all other companies that produce goods and services) have many constituencies to address and share their operating profits, cash flow and productivity with - first and always first the shareholders ie the risk investors, then the creditors, after that the rest flow ie the employees and managerial leaders, the tax dept who in India re-interpret rules all the time to extract more tax today and let you fight to get it back 3 years later, the channel partners and of course importantly the customers. I would be very happy if the German trio and other car makers make healthy margins for then they will invest more, create more jobs and pay more taxes to the Govt.


They have the right to price their products freely and we have the right to buy or not buy them (like I choose not to).

I won't deny the fact that any company has to share the margins with multiple entities. But these things are not exclusive for German car makers. Further, all these factors didn't prop up recently...it was always the piece of their pricing. My point is due to localization the duties should go down and so should the price. Just like when the ford spares/repairs use it be expensive when they were being imported but now they are more inline with their competition as they have localized. But I don't see that happening with German cars. One might argue that they are investing a lot by setting up manufacturing units and need to recoupe their cost which is driving them to increase the cost. But isn't the whole point of localization and setting up in India is for lowering the duties and cost of manufacturing. Recently Hyundai and Ford have announced that they will be exporting some of their models from India across the globe. If there is no added benefit of making and exporting from India I don't think all the manufacturers will be pushing for setting up in India which is what we are seeing recently.

If the final answer is "they have the right to price their cars and we have the choice to buy or not"...the existence of this entire thread is not justified. As per my understanding the topic was whether the German trios price hikes were justifiable so that everyone can share their personal opinion and this one is mine.

Pls don't get me wrong, these are just my thoughts.

[Distant Second]

Every dark Cloud has a silver lining.

Well India is the Dark Cloud. And we have only silver linings. Its brutal but true!

Coming to the justification of prices of the German Trio. I speak from the little experience I have gathered staying in Europe for a short period.

We can safely say that the same cars are priced anywhere between 30 - 50% of the costs we pay in India.

The average European makes (safe assumption) approximately double income than the average Indian.

Essentially we should not be able to afford these cars, as to an average Indian its almost 4 times as expensive to buy an S-class as compared to the the average European/Westerner in terms of affordability.

Yes, some of us do plan and are able to afford them. Others give out an arm/leg /even property to buy one of these cars. In reality Just like some one said, they can price it whatever they like and we have the luxury of choosing not to buy.

But yes, It does leave many of us (including me) saddened upon the realisation that we are not in a position to be able to afford one just because due to whatever reasons the same cars available at reasonable costs in the west are ridiculously priced here.

[Jeroen]

Originally Posted by thatsdileep

If the final answer is "they have the right to price their cars and we have the choice to buy or not"...the existence of this entire thread is not justified. As per my understanding the topic was whether the German trios price hikes were justifiable so that everyone can share their personal opinion and this one is mine.

Of course the thread is "justified". The choice to buy or not doesn't change that. What, if anything, this thread has shown, that some members "value for money" depends on the amount of (perceived) profit a company makes.

I asked before, would people be more inclined to buy, say a Mercedes, at its current price level if Mercedes was making a loss at each car?

Jeroen

[V.Narayan]

Originally Posted by thatsdileep

I won't deny the fact that any company has to share the margins with multiple entities. But these things are not exclusive for German car makers. My point is due to localization the duties should go down and so should the price. Recently Hyundai and Ford have announced that they will be exporting some of their models from India across the globe. If there is no added benefit of making and exporting from India I don't think all the manufacturers will be pushing for setting up in India which is what we are seeing recently.

Good point. Each company is in its own unique position vis a vis India, the world market, cost of production, strategy etc. Some may produce in India to sell overseas (very happy to see it happening) because they have the economies of scale and have matured their production environment here. Others may do it because they cannot turn a profit in India from local sales and need to augment volumes. Adjusted for INR inflation cars in India are much cheaper than what they were 20 years ago so the policy of localization is working in the right direction. Either way if they produce more here it creates more jobs through the supply chain.

Originally Posted by Distant Second

Every dark Cloud has a silver lining.

Well India is the Dark Cloud. And we have only silver linings. Its brutal but true! We can safely say that the same cars are priced anywhere between 30 - 50% of the costs we pay in India. The average European makes (safe assumption) approximately double income than the average Indian.

Essentially we should not be able to afford these cars, as to an average Indian its almost 4 times as expensive to buy an S-class as compared to the the average European/Westerner in terms of affordability.

But yes, It does leave many of us (including me) saddened upon the realisation that we are not in a position to be able to afford one just because due to whatever reasons the same cars available at reasonable costs in the west are ridiculously priced here.

To add to what you say - not only cars but a lot of other products are expensive in our country when you objectively compare quality for quality - housing is a good example; factories and warehouses are another; rail transport and electricity for industrial use is yet one more. My employees in France, UK & Dubai drive much much bigger cars than what I do in India. Fact of life. This is not unique to the German trio. It is an environmental issue.

Originally Posted by Jeroen

Of course the thread is "justified". The choice to buy or not doesn't change that. What, if anything, this thread has shown, that some members "value for money" depends on the amount of (perceived) profit a company makes.

I asked before, would people be more inclined to buy, say a Mercedes, at its current price level if Mercedes was making a loss at each car?

Well said. If car manufacturers or any manufacturer of goods and services was encouraged or forced to sell at a loss to address the perceived socialism of some customers then every company in India will be like Air India paid for by you & me the tax payer (Air India's publicly announced losses* -Rs 7800 crores March 12 + 5400 crores March 13 + 3900 crores March 14 and 5500 crores March 15 all paid for by the 3.5 crore income tax payers which I assume includes all BHPians). @GKR9900, @lurker, @srgntpepper this is the alternative to free pricing and a free economy.

My concluding two paisa - Are the German trio exploiting the Indian market's desire for a 'status car' and the inelastic price curve - yes they absolutely are. Do they have the right to do so - yes they do. Does their A.S.S. justify their price - I don't think so but each buyer will have his own view. Are they arrogant specifically versus India - I don't think so. If A.S.S. complaints in USA are any indicator they are consistent about their A.S.S and attitude towards the customer - no colour bar here!!

What does the consumer think - it varies.
For some customers a higher price = more status = more satisfaction = greater desire to buy that Mercedes. The OEMs will keep nudging the price curve up so long as higher price = higher volumes. They are presently in that cheerful band on the price-demand curve.

There would be a chunk of the customers of the German trio who will stop buying and migrate elsewhere if the trio were to drop prices by say 20%. One reason these cars are desirable is the fact that they are scarce due to their price. Is it over priced - that answer will have a unique point on the line for each customer. But we may want to desist from a grapes are sour approach.

* These are as per figures announced by the Govt at that point in time. The figures get revised a bit a little later!

[Hayek]

Originally Posted by thatsdileep

My point is due to localization the duties should go down and so should the price. But I don't see that happening with German cars. One might argue that they are investing a lot by setting up manufacturing units and need to recoupe their cost which is driving them to increase the cost. But isn't the whole point of localization and setting up in India is for lowering the duties and cost of manufacturing.

I think you have made all the right points but reached the incorrect conclusion. With the recent change in duty structures on CKD kits, and especially on imported engines and transmissions, the effective duty on the German cars "assembled in India" went up. The players absorbed that increase for a while till they could start making engines in India and go back to the original duty structure. But low volume manufacturing operations are intrinsically uneconomical - the Germans are opting for the same to avoid a 60% duty on engines and gearboxes, not for lower manufacturing costs in India

[thatsdileep]

Originally Posted by Hayek

I think you have made all the right points but reached the incorrect conclusion. With the recent change in duty structures on CKD kits, and especially on imported engines and transmissions, the effective duty on the German cars "assembled in India" went up. The players absorbed that increase for a while till they could start making engines in India and go back to the original duty structure. But low volume manufacturing operations are intrinsically uneconomical - the Germans are opting for the same to avoid a 60% duty on engines and gearboxes, not for lower manufacturing costs in India

One of my uncle is a high official in central Excise and customs and at some point in his career he use to deal with these auto manufacturer imports and he has been through the transformation of completely imported versions vs partial local manufacturing and full local manufacturing. Even his opinion is that the prices should go down for any reason but rather they are always increasing. Even when some these manufacturers started setting up in its in India there was no effective ereduction in price.

[thatsdileep]

Originally Posted by Jeroen

Of course the thread is "justified". The choice to buy or not doesn't change that. What, if anything, this thread has shown, that some members "value for money" depends on the amount of (perceived) profit a company makes.

I asked before, would people be more inclined to buy, say a Mercedes, at its current price level if Mercedes was making a loss at each car?

Jeroen

If any of these German trios are making losses, their products won't be priced at what they are selling them for now. If they are in losses they won't be in business for much longer. No company will do that.

[Jeroen]

Originally Posted by thatsdileep

If any of these German trios are making losses, their products won't be priced at what they are selling them for now. If they are in losses they won't be in business for much longer. No company will do that.

Actually that is not true. Plenty of historical evidence where companies sell a product at a loss. For instance to gain marketshare. Happens all the time. In just about all industries, certainly in mine.

The original Mini was sold at a loss. The Renault Laguna was sold at a loss and they never recuperated on that one. Jaquar Xtype, Fiat Stilo, Peugeot 1007etc. the list is quite long actually. What about Tesla?

http://www.reuters.com/article/2015/...0QE0DC20150810

And of course the Veyron.

Other than the fact that (car) manufacturer's to sell below cost my statement was more of mental exercise. Apparently, for some members a car is less attractive, less value for money if you like, if the manufacturer is making a lot of money on it. So, conversely, the more money is lost on a particular model, the more attractive such car would be for said members!?

At least that is what I'm trying to establish if that is actually true.
Jeroen

[S_U_N]

Originally Posted by Jeroen

...Apparently, for some members a car is less attractive, less value for money if you like, if the manufacturer is making a lot of money on it. So, conversely, the more money is lost on a particular model, the more attractive such car would be for said members!?

At least that is what I'm trying to establish if that is actually true.
Jeroen

I don't know about others, but I consider someone making loads of money from me as ripping me off.
So, I would question the value if I see something 1.5x the market price for similar products. There will be a difference in the quality and/ or experience. Should I pay more for that part? It depends.

So, the same cars when bought pre-owned become more value for money (and probably a bit more affordable).

The worst aspect is after paying millions, if the customer experience is unsatisfactory, then the consumer makes a fool of him/herself.

[Jeroen]

Originally Posted by S_U_N

I don't know about others, but I consider someone making loads of money from me as ripping me off.
f.

Would that also apply for the mobile phone you buy? The Mobile service Provider you subscribe to? The various social media you use? The clothes you buy? The food you buy?

So you would not buy an Apple or Samsung phone. You would not subscribe to Airtel as they make more money then the other Providers. No Facebook, Instagram and or Google for you. And you will not buy any branded clothes or shoes as those guys make a fortune compared to the unbranded stuff.

Takes all kind and I respect your point of view, but I do wonder how true anybody can be to that statement in terms of day to day practical life.

Me, I could not care less how much money they make. Value for money on any product or services has nothing to do with how much the respective vendor is earning or losing for that matter. love my iPhone, iPad, iPod and MacBookPro. I subscribe to Airtel (among others), use all social media and google is my default search engine on all my devices. All of these guys are making a boatload of money! Couldn't care less, its not a factor as far as Im concerned.

Several members have shown/stated similar sentiments as yourself. However, nobody has commented on my question regarding what happens when a product is made at a loss. Along these lines, one would think it would be more attractive?

Reminds me of some of my customers. Some are them are worried about our cost, but only if they think we are making a profit. When I want to discuss the contracts that are not that financially healthy all of a sudden, our cost is our responsibility and ours only.

Jeroen

[S_U_N]

Originally Posted by Jeroen

Would that also apply for the mobile phone you buy? The Mobile service Provider you subscribe to? The various social media you use? The clothes you buy? The food you buy?

Exactly. My comment was not about a particular car maker or a particular country.
Value perception is different for each individual. So, Apple or BMW or XYZ may be value for some - and not for others.

About the products sold at loss, I don't think if someone claims that if they are selling something for loss (Was Honda Jazz sold for a loss in India?) would make it value for money automatically.
If the product quality/ reliability/ experience is found to be very good (compared to other products in the price range, I think I would buy it at the 'discounted' rate, if I need the product.

[avira_tk]

Originally Posted by thatsdileep

One of my uncle is a high official in central Excise and customs and at some point in his career he use to deal with these auto manufacturer imports and he has been through the transformation of completely imported versions vs partial local manufacturing and full local manufacturing. Even his opinion is that the prices should go down for any reason but rather they are always increasing. Even when some these manufacturers started setting up in its in India there was no effective ereduction in price.

Your uncle isn't part of the business and government officials are more often than not clueless about any of the businesses they oversee. Importing an engine from a high capacity factory will be cheaper than setting up an operation in India to assemble the engines. BMW operates from a pretty expensive SEZ, rent, transport and labour along with training the workforce will eat into the duty savings that your uncle talks about. His opinion about prices going down is just that,an opinion, not related to the market and basically the zero sum arguments that government employees are known for.

There is an ownership report of a 520d along with its cost in Bangalore, 36 lakhs around April 2011, inflation from then till today is 40% so the car will cost around 50 lakhs which it does. The OTR has gone up only by 20%, from 50 to 60 lakhs (discounts on the latter), inflation adjusted costs are quite in line. Sticking with the 5 series example, the 525d/530d reviewed by team-bhp and the one GTO got recently is different, upgrades done in less than 2 years on the market. Simple fact, keeping a range new, involves huge capital and price hikes are inevitable.

[greenhorn]

Originally Posted by V.Narayan

How can any pricing be fishy in a competitive free market where the producer/trader is free to sell at whatever price suits him and the buyer is free to buy or refuse to buy at that price.

Methinks the german big 3 is beginning to resemble an oligopoly. Initially they had cut prices in the race to won marketshare and revenues, but later realized that by doing so, they are expanding towards the bottom of the pyramid, which was diluting their images. I recall seeing 320D's all over the place at some point, and was secretly hoping that at this rate, I could look forward to a used 320D corporate edition for <10 L in 3-5 Years.

They seem to have realized that this was not helping their image, as these are
https://en.wikipedia.org/wiki/Veblen_good
Hence all three have decided to jack up prices & chase fatter margins for a slight loss in volumes. If any one of the 3 offers significant discounts over the others, they would easily dominate in the sector, but none of them are.

[thatsdileep]

Originally Posted by avira_tk

Your uncle isn't part of the business and government officials are more often than not clueless about any of the businesses they oversee. Importing an engine from a high capacity factory will be cheaper than setting up an operation in India to assemble the engines. BMW operates from a pretty expensive SEZ, rent, transport and labour along with training the workforce will eat into the duty savings that your uncle talks about. His opinion about prices going down is just that,an opinion, not related to the market and basically the zero sum arguments that government employees are known for.

Although you are entitled to your views and opinions but generalization of government officials being clueless about the businesses is not required in this discussion where I've mentioned about my uncle to quote one of my sources and background of my views. Yes my uncle is not a part of the business and for that matter none (or most) of us in this thread are part of this business. Your affirmative statements about his opinions "not related to market" and "zero sum arguments" is totally uncalled for, as you don't have any first hand information about his credentials or interests in this industry. I don't want to go further into this discussion and explain my uncle's enthusiasm in cars and so on. Your first paragraph could've been straight to the point without derogarating a particular individual or a class of people (govt officials). So let's try to keep the discussion straight to the topic without targeting specific individuals.

Hope you understand. Don't take me wrong!
Mods: Feel free to delete the post if anything I said above is inappropriate!