February 24, 2009 / 11:26 AM / 11 years ago

UPDATE 1-Daimler starts India car production on single shift

* Daimler starts making cars at own facility in India

* Production kicks off on single shift, could increase later (Adds detail, byline)

By Janaki Krishnan

PUNE, India, Feb 24 (Reuters) - Daimler AG (DAIGn.DE) will start producing Mercedes-Benz cars in India at its own facility on a single shift, the chief executive of its Indian unit said on Tuesday.

“We will gradually increase it to three shifts depending upon the demand in the market,” Wilfried Aulbur told reporters before inaugurating the new manufacturing facility in western India.

Mercedes-Benz India Ltd, fully owned by Daimler, had been making cars and trucks in India since 1994 but this was initially in a joint venture with Tata Motors (TAMO.BO).

After the joint venture ended in 1997, the German firm had been making the C, E and S class cars at a facility that was leased from Tata until the end of 2008.

The new plant, set up with an investment of 50 million euros ($63.7 million) has a capacity to make 5,000 cars and 1,200 trucks and buses a year on single shift.

“This is a totally demand-driven market and we will gradually increase it to three shifts depending on the demand,” Aulbur said.

Mercedes-Benz had doubled car sales in India to 3,600 units in 2008, while the growth in Thailand, Singapore, Malaysia and Vietnam had been less than 10 percent, he said.

The company had raised the prices of its cars in India by 2.5 to 2.7 percent across all models on Monday.

Joachim Schmidt, chairman of the Mercedes-Benz India board, said 2009 would be a difficult year.

“It will be hard for us to give numbers, whether we will remain flat or grow but we see great potential in the mid-term,” he said.

Demand for luxury vehicles in India was buoyant despite the global downturn in economies and the world automobile market, Schmidt said, adding this year also he expected it to be better than demand worldwide.

The company also sells its M-class and AMG range of performance cars from imported kits in India.

Globally the passenger market would see a decline of 10 percent, Schmidt said.

Aulbur said the new facility could also make other models if needed. “We have a flexible manufacturing process and it will allow all of our other global products on the same assembly line,” he said.

The facility will also make vehicles for the coal mining sector and buses for inter-city travel.

Schmidt said Daimler’s joint venture with India’s Hero Group to make trucks in the southern city of Chennai was on track.

The $1.1 billion venture, in which Daimler has a 60 percent stake, was signed last year and has an initial capacity of 70,000 units a year. It is expected to start production in 2010.

Schmidt said Mercedes-Benz was considering plans to ease a liquidity crunch that was affecting sales, and setting up a finance arm was an option.

“We have a group here which is engaged in the task of looking at the feasibility,” he said. ($1=.7847 Euro) (Editing by Ranjit Gangadharan)

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