For years, it has waited on the sidelines. But now with import restrictions easing, Merc is moving to tap its global portfolio and bring the force of Mitsubishi and Chrysler to weigh in on the market.

By R. Sridharan

''Running a young company,'' says Jurgen Ziegler, ''is like coaching a soccer team. You have to draw the best out of individual players, and yet synergise their skills as a team. But the hardest part is telling the 12th man that he won't be going out into the field today, although he is as good as any of the 11 out there.''

The 42-year-old Ziegler should know. For more than 20 years, he was an amateur soccer player in Germany, and in between was also coaching local teams. More recently, though, Ziegler has spent the last six years in Pune, helping Mercedes-Benz India Ltd (MBIL) find its feet in a hopelessly cramped and price-sensitive market. Having risen through the ranks to the top job at MBIL, Ziegler-a centre back, if not the 12th man in the automotive game in India-is moving the marque's strategy from the sideline to the centre field.

In the last 16 months as the Managing Director and CEO, Ziegler has ushered in three new models: the E-240 and 200 in the E-class; the super luxury S-320L, and the new C-180. The result: MBIL today has the widest range of cars, next only to market leader Maruti Udyog. Encouragingly for Ziegler, the Indian operation-where Daimler-Chrysler has sunk in Rs 600 crore-turned in its first profits of Rs 20 crore on sales of Rs 242 crore in 2000, after a loss of Rs 12 crore in the year before. Creditable, considering that rivals such as Honda and Daewoo are yet to show profits.

Finally, things seem to be falling in place for MBIL. In April, the German-American giant bought the remaining 14 per cent stake held by Tata Engineering, getting complete control over the Indian subsidiary. The C-class, launched world-wide less than a year ago and in India in April, has bagged 200 orders locally in less than a month. And thanks to the lifting of restrictions on import of cars, MBIL will be able to further widen its portfolio without having to make any significant investment in plant and machinery. Says Ziegler: ''By now it should be clear to all our critics that we are here for the long haul.''

Revving Up

It isn't just Ziegler who's saying it; the message comes right from the top at the 162-billion, Daimler-Chrysler group. Jurgen Schrempp, the group Chairman, has made it clear that it's time to look at smaller, cheaper cars. Growing pressure on road infrastructure and environment has led to a shift towards compact and fuel-efficient vehicles. In developed markets such as North America and Europe, car-buying population is fast saturating, forcing manufacturers to look at emerging markets in India and China, where smaller, economy cars are the norm. And watching over the performance of strategic Daimler-Chrysler subsidiaries such as MBIL is none other than Schrempp, who wants a quarter of the group's revenue to come from Asia by at least 2008.

The deadline and the figure may be too optimistic, but MBIL, which will play a key role in helping rack those numbers up, has several things going for it. Over the years, it has established itself as the leader in the luxury segment. Unless BMW, Lexus (Toyota's luxury car division), or either of General Motors' or Ford Motor's premium brands enter the market, it faces no threat to its position.

Just the same, Ziegler isn't taking any chances. In the pipeline is a slew of launches, including the sporty CLK, SLK models, besides offroaders from the Chrysler and Mercedes-Benz stables (See Waiting In The Wings). What these models will do is to consolidate the company's position in the premium segment. Because the market for luxury cars-the new models will likely cost between Rs 30 lakh and Rs 50 lakh-will necessarily be limited, the new vehicles will be brought in as completely built-up units (CBUs). That apart, MBIL will import for customers any other model they may want from the Daimler-Chrysler portfolio. Admits a Delhi-based rival: ''It's reasonable to say that MBIL's position in the top-end is unassailable.''

Moving Down

Perhaps, but the company doesn't want to stay wedded to the niche upper-end. For good reason. Since 1995, it has managed to sell 6,000 cars, whereas overall passenger car sales in that period soared from 2.94 lakh to 5.90 lakh. And if despite those numbers it is profitable today, it is due to exports (3,000 cars to date), and lean operating structure: six modular vendors, 329 employees, and 11 dealers. But the realisation in Pune, as much as in Stuttgart, is that with competitors moving up into Merc's turf, the company in turn needs to move down the mass market.

That in part explains why the C-class was launched with an aggressive price tag. The problem, however, is that the price line cannot be stretched beyond a point without diluting Merc's carefully built premium image. In fact, some analysts believe that the cheapest Merc model in India (the entry level A-class) will not stoop below the Rs 15 lakh mark. Does that mean an image trap for MBIL? Yes and no.

By refusing to price lower, MBIL is passing up on an opportunity to redefine the emerging D-segment. Consider: the C-180 retails for just £14,220 in the UK (about Rs 9.5 lakh) Had the company priced it around Rs 15 lakh, the new luxury cars such as Hyundai Sonata, Honda Accord or the Ford Mondeo would have been hard pressed to justify their prices (See C Major Or D Minor, on page 40).

Still, MBIL won't be deprived of the action in the lower end. Reason? The strategic investments Daimler-Chrysler has been making in Asia. In two separate trenches, it has picked up 37 per cent stake in Mitsubishi Motors. No doubt, the Japanese company is debt-laden and loss-making. But Stuttgart has placed its own man at the helm in Tokyo to speed up its revival. That apart, it has a strategic 10 per cent stake in Hyundai Motors, which by no means is a laggard either in Korea or in India. The bottomline: all small cars and sedans will come from Mitsubishi (Hyundai's automotive technology is derived from Mitsubishi, too).

Currently, Smart and Mitsubishi, along with Daimler-Chrysler, are working on a small car project, code named Z. Smaller than the A-class, but bigger than the Smart car (its maker, Micro Compact Car, is a subsidiary of Daimler-Chrysler), the Asia car is slated to hit the roads in 2004. It is quite possible that Mitsubishi's Lancer plant near Chennai may be used for manufacturing the car in India. And it may only be a matter of time before the Japanese company's sedans come rolling out, too.

Meanwhile, Hyundai is working on its own Asia car project. The Korean company had invited Daimler-Chrysler and Mitsubishi to participate in the project, but they chose to stay out. Schrempp, some analysts feel, would love to hike stake, except that investors-already sore over the Chrysler merger-may crib like hell. Just what role will Chrysler play in the Indian market? Very limited. In its start-up years, MBIL toyed with the idea of launching Chrysler's 2-litre engine Neon. But the feasibility study revealed that the risks (and the cost) of launching and building a relatively unknown brand were too high.

Five years from now, Ziegler-who may return to Germany in another year or so-wants MBIL to offer a complete range of products to consumers in India. And how far he manages to do that will depend on Schrempp braving the flak from investors and delivering on his promises.

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