Volkswagen gets India-specific to reverse sale downtrend

Written by Roudra Bhattacharya | New Delhi | Updated: Jul 16 2014, 14:08pm hrs
In a sharp change in strategy, Europes largest car maker Volkswagen has decided to develop and launch more India-specific vehicles to suit local tastes instead of the current practice of bringing models sold overseas. From 2016 onwards, sub-four metre compact sedan version of the Vento and a new compact SUV will be launched, followed by small cars below the current entry model Polo.

The move is expected to help the German carmaker reverse its sliding fortunes in India, the worlds sixth-largest car market at 25 lakh units a year.

Michael Mayer, newly-appointed director for Volkswagen Passenger Cars, Volkswagen Group Sales India, told FE that the company would aim to safeguard its premium image in the market and thus not bring older generation products just to meet lower cost targets set by rivals. The first priority is to launch sub-four metres versions of a sedan and SUV which are being developed for India. These are not the cheap segments and customers are moving up as well. We will take some time for indigenisation, so expect launches from 2016-2017, he said.

He added, Small cars in the entry range will be the second priority. Its a very price-sensitive market with lower margins, but its the core of the market and we cannot leave it totally aside. We reviewed both the Up and Fox (small cars sold in Brazil & Europe), but they were either too expensive or too big for India.

When it entered in 2008, Volkswagen had first set a market share target of 10% by 2015. But six years since, its share remains at 2% (in FY14). With no new models to offer in mass segments since 2010 when the Polo and Vento were launched, Volkswagens volumes have dipped 20% (to 52,528 units) in FY14 and a further 42% (to 8,769 units) in April-June FY15.

Gaurav Vangaal, automotive analyst, IHS, said, It will be a right strategy to bring compact sedans and SUVs to India because the segment is growing and most carmakers are eyeing the segment. Fords EcoSport has done well in the small SUV space, and Maruti Suzuki, M&M and Tata Motors are all planning to enter this segment.

Plans to invest R1,500 cr Volkswagen is also finalising a R1,500-crore investment plan, a chunk of which would be used for an engine plant in India to bring localisation levels to around 90% from 70% today and help the brand price products more competitively. Till date, Volkswagen Group has invested about R4,500 crore in two plants in Pune (Chakan) and Aurangabad that are also used by sister brands Skoda and Audi.

Mahesh Kodumudi, group chief representative and president & MD of Volkswagen India, said with new models in the pipeline, capacity at the Chakan plant can go up to 2 lakh units a year from 1.3 today. We will soon go on an expansion phase with new models. We are really pushing our headquarters for the engine plant. Not having it is definitely a handicap in terms of a sustainable business model. There is a lead time in the auto industry for investments to bear fruit, and with the market improving for the past two months we need to start as soon as possible, he said.