Sri Lanka Volkswagen deal needs transparency: Motor Traders’ Chief

Volkswagen

Aug 31, 2015 (LBO) – The assembly plant investment by the German automaker Volkswagen in Sri Lanka needs to be transparent and all other motor companies who wish to invest should get the same facilities, an official of the Ceylon Motor Traders’ Association said.

“I think they have to be very transparent in the Volkswagen deal,” Gihan Pilapitiya, the chairman of association, told Lanka Business Online, referring to the government.

“It looks very shaky. What we have already requested the government is to float it. If they are giving Volkswagen why not give Toyota, why not give Nissan and other people,” he said.

“There may be many car companies who would look at it. We have already written to them but as usual there was no response from the government. But probably because of the changes,” he said.

A week before the general election in August, the sole agent of Volkswagen, Senok Automobile, signed an agreement with Sri Lanka’s Board of Investment to have an assembly plant in the island with an investment of 26.5 million dollars.

According to BOI, the car maker initially plans to make cars for the local market. It will get an eight year tax holiday for their investment and receive 30 acres of land, in Kuliyapitiya, the North Central Province.

The facility will be completed within a period of two years and the plant will assemble passenger cars, sport utility vehicles SUVs, multi utility vehicles MUVs and commercial vehicles.

Pilapitiya, the re-elected chairman this week, says good governance policies and facilities should apply to everyone who is interested to make the same kind of investment in the motor industry.

“I think they have to publish it and be transparent and say this is the policy and you entitled for it, if you bring this much of investment, give this much of new employment and export this new number of car,”

“Otherwise it is going to be a huge issue. I don’t know whether it was an election bomb,” Pilapitiya told.

“I heard the investment is around 30 million dollars. If you come to my company, the value of the stock is more than that. 30 million dollars is nothing.”

The German company which this year overtook Toyota as the world’s largest carmaker by sales will assemble diesel-powered vehicles in the 1,000cc to 2,000 cc category in Sri Lanka.

The company said these vehicles would be marketed locally for a period of three years and thereafter the vehicles will be exported to overseas markets. They plan to employ about 200 people initially to produce 500 vehicles annually.

Pilapitiya says there can be serious issues coming up when it comes to marketing theses cares globally as Sri Lanka is not a popular destination for an automaker.

“Frankly, I do not think it will be viable and even if they export, I don’t think anyone wants to buy a car assembled in Sri Lanka,” Pilapitiya told Lanka Business Online.

“There are classic examples in our market. There are top-end vehicles sold that are Indian made. None of those vehicles could be sold in Sri Lanka. You can ask Mercedes. They were trying to sell Indian-made Mercedes in Sri Lanka. They would have sold only five units. It was never picked up by the Sri Lankan market,” he said.

“In here people are curious about country of manufacture, country of assembly etc. You can’t just sell. I don’t know who will buy a car made in Sri Lanka, may be Pakistan will buy.”

Pilapitiya added that even the cost of assembly of a car is higher in Sri Lanka.

“Volkswagen is not a small company, they are among the first five automobile companies in the world. I don’t think they would be flexible enough to give 500 vehicles to Sri Lanka to assemble, the cost might be more,” he said.

“I know, because we have tried to get a vehicle to assemble here, and the cost is 20 percent more.”

“This is not a nut and bolt business. These are not manually assembled, but by robots. That process is very cheap. It’s cost effective and you don’t need lot of manpower. So if you take it apart and give, the cost will be very high.”

“China will do anything. But Germans and Japanese will not compromise anything for quality,” Pilapitiya said.

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Chan Wee
Chan Wee
7 years ago

” The Group operates 119 (May 26, 2015) production plants in 20 European
countries and a further 11 countries in the Americas, Asia and Africa.
Every weekday, 592,586 employees worldwide produce nearly 41,000
vehicles, and work in vehicle-related services or other fields of
business. The Volkswagen Group sells its vehicles in 153 countries.”
from : http://www.volkswagenag.com/content/vwcorp/content/en/the_group/production_plants.html

also something many may not know is that the VW group actually owns 12 brands viz., AUDI SEAT SKODA BENTLY BUGATTI LAMBORGHINI PORSCHE DUCATI SCANIA MAN VW Commercial Vehicles in addition main brand VW. surely something can be made in sri lanka that can be sold in India for example. If Indians buy Indian assembled Audi and VW no reason for them to not buy it from SL.
the landrover group was taken over by TATA India. the brand has not suffered becoz of where it is made now.
one need to differentiate between an established brand an an unkown brand in these kinds of decisions. Tata Nano or Maruti or even these chinese stuff has no history in the car sector. people will think twice before buying them even at a cheap price. but Volkswagen has nearly 100 year history. their quality will be maintained irrespective of place of assembly.

Mohamed Ishak
Mohamed Ishak
7 years ago

I think Mr.Pilapitiya’s thinking is very poor, he should think SL as a country is very popular for its good quality of labour since this was proved by such global brands like Nike, Adidas & triumph & other world famous lingerie manufacturers are still making their goods in SL although they can make the same in Bangladesh for cheap labour, If we had thought we can not make them in SL how it become a reality. We should try and be positive and should have the “can do” attitude. His thinking is negative, he should think this investment will bring not only jobs but will also bring technical know how and a recognition for the country to be an export hub for high quality goods. VW is a powerful brand and they have very strict QC standards which they will never compromise if they elect to sell vehicle in SL or in any other parts of the world. We should not have these kind of negative and poor thinking people in this kind of organisations in the first place.

Libtard
Libtard
7 years ago
Reply to  Mohamed Ishak

The point is the agreement should be transparent and should apply the same regulations for any future assembler.

For example we had a rule where a vehicle assembler had to have atleast 30% local value addition to be qualified for tax breaks. Is Senok going to have that much of local value addition? If not do future companies too get the same tax breaks for a less local value addition? Such regulations should be consistent without favoring one company. Otherwise it could be interpreted as corruption.

Shiwanka
Shiwanka
7 years ago
Reply to  Mohamed Ishak

Well Said

nuwanda
nuwanda
7 years ago
Reply to  Mohamed Ishak

totally agree with you… clearly shows how much he’s afraid of loosing Japanese market… as per pilapitiya, Sri Lankan cannot assemble cars well… isn’t it?
poor guy…. people started talking and giving ideas bcz of Good Governance… at least its better… h ehe

LOL

BKVWHK
BKVWHK
7 years ago

Is it true that others had tried and they were told US$200m by the BOI ? What connection does the current government have with VW or Senok ? Grapevine only.

Shiran
Shiran
7 years ago

Unfortunately, it’s due to negative people like Mr. Gihan Pilapitiya that Sri Lanka has fallen behind the rest of the world!

Ammi
Ammi
7 years ago

First of all,

“I heard the investment is around 30 million dollars. If you come to my
company, the value of the stock is more than that. 30 million dollars is
nothing.”

This right here makes Mr. Pilapitiya too needy for it. If Mitsubishi started assembling here and the government was on his side, he wouldn’t be stating how much capital he has. Everybody wants a piece of the cake, that is all. Also, what is this comment about people not wanting to buy vehicles which are assembled here? Micro is doing pretty good with their sales and, Indian cars are sold in huge amounts; I don’t understand what he is trying to say except for that he comes across to me as a person who is trying too hard to bring down a good move.

Shorty
Shorty
7 years ago

Well Mr.Gihan aren’t you a special breed of intelligence…all this from a person who was demoted from director of tvs to GM of Mitsubishi you would never support a great opportunity as it’s not something that’s revolving around a company you work for.

“I heard the investment is around 30 million dollars. If you come to my
company, the value of the stock is more than that. 30 million dollars is
nothing.” Is this stupidity or are you mentally challenged as you do realize you told the nation you have a stock value worth Rs.4,050,000,000/- seriously are your teeth still white after this interview.

As a head of department in a reputed company kindly think before you talk, we all know United Motors did well with permits just because Senok beat you to signing up a deal for a SKD plant don’t get your draws in a twist.

Thaathi
Thaathi
7 years ago

The way Mr.Gihan has spoken above clearly shows that he is afraid about the competition that is ahead to face.

Deepani Lo
Deepani Lo
7 years ago

what competi, none of the vw made in SL will sold who wants to buy a SL made vw.

Chan Wee
Chan Wee
7 years ago

people buy micro and do they even know which country the parts come from? in fact it was kind of silly becoz micro did not have test data BUT then people never care about those in SL.
this will be a great start for bigger things.
there was a time when the only car in India was Hindustan BUT then the powers that be allowed Toyota et al from japan and Hundai et al from Korea to open plants and produce for the domestic market. the roads have changed from those days with many of these cars preferred. i dont even know if Hindustan is still being made.
before 1983 we had the chance when these companies were looking at us seriously to set up shop but then India invented the tigers and rest is history.
How many people who write comments remember UPALI FIAT???? now that was a visionary!

Prasad
Prasad
7 years ago

Above all discussions has a point in their own view, however, anyone from this industry is little skeptic about below points.
1. Investment of 30 Mio USD for an automobile plant is not practical. This may be an assembling garage, not assembling line.
2. Actually a company like VW will invest such a tiny amt.?
3. 500 vehicles means to local mkt. they can sell it easily. There is no doubt of it.
4. to make 500 vehicles, they employ 200 people. This should not be an auto factory. This is a garment. According to this, one vehicle will be assembled by 100 people ??? (2 vehicles per day, with 200 people = nearly 500 vehicles per year) . This is clearly not true, or may be an election joke.
5. However we encourage this type of investments, as this will develop our peoples skills.