Frankfurt: Daimler AG has selected Chennai in the southern Indian state of Tamil Nadu as its site for a new truck plant in India, in partnership with joint venture partner and India's leading two wheeler manufacturer, Hero Group. The joint venture will assemble 70,000 trucks per annum initially, and an investment of over €700 million, which is a little over $1 billion over the coming five years.

This was disclosed by Daimler in a statement today, in which it said that the key factors leading to the choice of the Chennai site were proximity to important suppliers, the city's infrastructure, transportation connections and the large number of well-qualified skilled workers in the region.

The joint venture, Daimler Hero Commercial Vehicles, will start produce the trucks in 2010, under a new brand for the Indian market, and will subsequently export them as well. Chennai is India's fourth largest metro city, and is currently tied with Pune in the western Indian state of Maharashtra for the coveted position of India's automotive capital.

Amongst other global auto majors who have based their operations in Chennai are BMW AG Ford Motor Co, and Hyundai Motor Co. French auto group Renault SA along with alliance partner Nissan Motor Co too are building a new plant there. Amongst Indian commercial vehicle manufacturers, Ashok Leyland assembles vehicles in Chennai.

Daimler Hero Commercial Vehicles signed a Memorandum of Understanding (MoU) with the Tamil Nadu government today. On 21 April, Daimler and Hero Group had agreed to invest €700 million in the venture over the next five years.

The company said it Chennai plant would eventually export to markets with similar product requirements as that of the Indian market, and is looking at achieving a localisation rate of up to 80 per cent to optimally utilise cost advantages.

Volvo, MAN AG and Navistar International Corp. have a headstart on Daimler in India, with truckmaking partnerships in place to gain wider access to an expanding market for freight-transport and construction vehicles. Daimler started manufacturing somewhat limited quantities of the the Actros truck on its own in India last year, and commercial vehicle demand in India is set to boom, with the economy having grown nine per cent last year, second only to the China's 11.9 per growth.

The Indian truck market is growing at around seven per cent a year, approximately twice as fast as mature markets in Europe and the US, according to Heinz Gottwick, a Stuttgart-based spokesman for Daimler.

Part of the €700 million would include debt. Daimler holds 60 per cent in the partnership, and is putting in €220 million in cash. Initially, the plant will make light and medium trucks for India, and later start exporting to neighbouring markets, Daimler said in its statement.