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Volvo not hurrying engine manufacture in India

Volvo India Private Limited, the Indian subsidiary of Ab Volvo of Sweden, is in no hurry to begin local manufacture of engines and transmissions for its heavy-duty trucks in India.

However, the company would work towards increasing the level of indigenous content in its vehicles from 40 per cent at present to 50 per cent by 1999-end, senior company officials said. Making engines and transmissions locally is not an immediate priority, they said.

Currently, the engines for its FH12 and FL7 trucks are being imported from the parent company. "Though we feel that locally manufacturing the engines at our Hoskote plant will help us control costs, we need volumes to actively pursue this idea," an official said.

"Once our sales go up and reach a certain level, we will start manufacturing engines at our plant," the officials said, adding that no time frame has been fixed for the same.

The company needs to make about 3,000 engines per annum to be viable in the country. It has sold only 100 commercial vehicles in August-January, the first six months of its operations in India.

Volvo India is the second global commercial vehicle manufacturer after the Czech-based Tatra to decide to go slow on making engines locally. Tatra, which makes heavy trucks and tippers, was considering manufacture of engines but shelved the project in view of the slowdown in the economy, the automobile sector, and the commercial vehicle sector in particular.

Meanwhile, Volvo India has already decided to go slow on exporting completely built units of Volvo trucks made in India till the company consolidates its position in the domestic market.

"Our current target is to capture a substantial share of the domestic market in India," the officials said, adding that exporting complete units does not make "good business sense".

Ab Volvo of Sweden had, while setting up operations in India, announced that the company intends to make India a major sourcing base for its global operations.

"We plan to export trucks from India to the rest of the Asian market and [export] components to Europe, North America and South America besides the rest of Asia," Karl-Erling Trogen, the parent company's senior vice-president had said.

"There is certainly a market for our vehicles in the other Asian countries. But at this point of time, we would like to focus our attention on the domestic market," one official said.

However, the ongoing recession notwithstanding, the company plans to go ahead with its proposed 300 million-dollar investment in India.

The official said Volvo is now working towards exporting components procured from Indian manufacturers to meet its commitments. "We have initially targetted components procured from Indian vendors to be the first product in our export basket. The components are currently being sold to the parent company," the official said.

The company has already invested close to 80 million dollars in its wholly-owned subsidiary in India.

Volvo has a Foreign Investment Promotion Board approval to invest 300 million dollars in India. Sources said the investment would flow into the country over the next five years and would be used to set up an integrated base for its core business of manufacturing trucks, buses and construction equipment.

The company now has a manufacturing unit in Hoskote, Bangalore, set up at a cost of Rs 3 billion, with a capacity to assemble 4,000 vehicles per shift per annum. The unit is currently producing about 30 vehicles per month and that total capacity utilisation would be achieved within the next five years.

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