BMW, the German carmaker, opened its first factory in India yesterday to meet a rising demand for Western luxury brands in the world’s second fastest-growing economy.

The 89,000sq ft (8,300sq m) kit-assembly plant near Madras will make 1,700 cars a year on a one-shift operation but that could be doubled if the premium market expands as expected.

The first 3-series models, made from imported parts, except for the seats, are already rolling off the production line and will be followed by the 5-series in May.

The more expensive 7-series BMWs — favoured by the Indian elite, including Manmohan Singh, the Prime Minister — will continue to be imported alongside X5s and X3s.

Only 257 BMWs were sold in India last year but the company claims that it has already eclipsed that figure in preorders for the locally assembled cars.

The luxury car market in India, where urban drivers sit in traffic jams and rural roads are often too potholed to navigate, is only 0.03 per cent of all cars sold.

But analysts expect that market — cars costing more than €120,000 (£81,500) — to grow by 212 per cent by 2013.

BMW’s €20 million investment in India is conservative, but directors, wary of overcapacity, point to South Africa as a template.

In 1973 the 3-series sedan production run there was 3,000; today it is 55,000, a third of which is exported.

Norbert Reithofer, chief executive of BMW, said: “Our flexible approach keeps us on the safe side. Production has to follow the market. If we need more capacity we will have it.

"We want Asia to be the fourth mainstay of our business after the US, Europe and Japan. India is an important step.”

BMW sold 136,000 cars — BMWs, Minis and Rolls-Royces — in Asia last year and is targeting 150,000 in 2008.

The company has assembly plants in Thailand, Malaysia and Indonesia and a joint-venture production facility in China, the second biggest 7-series market after the US.

The decision to set up a facility for domestic-only sales reflects a belief among international carmakers that India could become one of their biggest markets.

With the economy forecast to grow at 9 per cent for the next decade, an expanding middle class can increasingly afford cars, and software engineers, investment bankers, entrepreneurs and film industry moguls are graduating to the premium market.

By 2009 it is predicted that 135,000 Indians will earn more than €95,200 a year.

Shapur Kotwal, the deputy editor of Auto-car India, said: “Luxury will grow at a higher rate than the rest of the market. In three to four years, it will take off.”

Mercedes-Benz is the most established premium brand in India, having sold 14,730 cars since 1996.

Besides BMW, Audi also will assemble in India, while Skoda, labelled a premium brand, is considering full-scale production there.

BMW has not ruled that out but volumes would need to exceed 30,000 units a year.

It may consider assembling in India for the export market, although the decision would depend on improved India-EU trade agreements.

It is also evaluating whether the Mini, already sold in 71 countries, would be viable in India.

Roadworthy

India plans to spend 220,000 crore rupees (£26 billion) on improving 50,000km of national highway by 2012.

A 5,846km quadrangle linking Delhi, Bombay, Madras and Calcutta is almost complete.

Construction projects in India are notoriously fraught with delays and contractual disputes.

Critics argue that present investment in infrastructure is only a quarter of the amount needed for India to keep pace with rival emerging economies.

Wheel deal
1.35m cars sold in India each year
4,500 luxury cars sold
97% of cars sold cost less than €15,000
257 BMWs sold in 2006
€20m BMW’s investment in India
€46,400 ex-showroom price of a 320i assembled in India
12 BMW dealers in ten cities by 2009
13 million cars on Indian roads by 2010; 34 million in China

Source: BMW India, McKinsey, National Council of Applied Economic Research

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