VW is stepping on the gas

At the launch of Volkswagen Group?s new plant in India?at the Chakan industrial park near Pune?last month, Jochem Heizmann, member of the board of management of Volkswagen Aktiengesellschaft with responsibility for group production, said, ?With the start of production at our new plant in Maharashtra, the Volkswagen Group has conclusively arrived on India?s emerging market.?

The message was clear. Simply put, VGI wants a bigger share of the Indian automobile market. To be precise, it wants to have a 8%-10% share of the Indian automobile market, where in now has a minuscule 2%. By next year, when the new Polo mid-luxury hatchback goes for production, the company plans touch 50% in terms of localisation, which will be gradually increased to 80% in two years. If all goes well, India will be VGI?s regional hub for sourcing components and for exporting its products to the South East Asian countries?to begin with.

The group?s newly opened Chakan plant near Pune?which has a capacity of 1,10,000 units?will play a decisive role in following through the plan. With a total financial commitment in India amounting to 580 million euros, the Pune plant represents the largest investment to date by a German company, in the country.

The Pune plant is among the most modern in the Volkswagen Group. It has a high level of vertical integration and a large share of local suppliers. It is the only production plant operated by a German automaker in India that covers the entire production process, from press shop through body and paint shop to final assembly.

Volkswagen plans to employ some 2,500 people at the Pune plant by the end of 2010. The investment agreement to build the new plant was signed in November 2006?just over two years before today?s inauguration ceremony. Says Pinaki Mukherjee, lead analyst, Datamonitor India, ?The brand has been very aggressive worldwide and has the pulse of the Indian market too. Now the biggest challenge before it will be to build customer support and become a volume player in the Indian market.?

VGI?s line-up currently includes Bentley and Lamborghini (Rs 3 crore-plus) in the super-luxury segment. At the Aurangabad plant, VGI makes part of the luxury car Audi (Rs 28 lakh-Rs 50 lakh), besides the Skoda cars (Rs 5 lakh – Rs 24 lakh) including Fabia, New Superb, Laura and Octavia. It also sells Volkswagen Passenger Cars (range Rs 13 lakh-Rs 22 lakh) including Jetta and Passat. Porsche, that holds more than 50% of VW shares, is also present in India and sells cars in the range of Rs 50 lakh-Rs 1.3 crore.

The Chakan plant will roll out an entire range of compact cars it has lined up for the Indian market: Skoda Fabia, and the upcoming VW Polo and VW Up. The plant will produce cars in the Rs 3 lakh-Rs 6 lakh band. In precisely two years, when all three cars are in production, VW will have an entire spread in the Indian market.

VG Ramakrishnan, director, automotive & transportation, Frost & Sullivan, South Asia & Middle East, said, ?The role of VW in India will be defined by the kind of products it gets to India and at what price. VW has already given a feel of its product range to the market and its brands like Audi and Skoda have attained visibility.?

India fits in snugly with Volkswagen?s global ambitions. VW is the world?s fourth-largest car maker after Toyota, GM and Ford. In Europe and China it is at the No 1 position. Joerg Mueller, president & managing director, VGI, has said, in so many words, that the company wants to become No 1 player globally. In Europe, the group is looking at a growth rate of 2-3%. In Asia, the growth prospects look better and the group is convinced this growth will come from India.

?In times when the demand in the developed economies is saturating, any original equipment manufacturer (OEM) looking for growth will have to be in emerging markets, including India, because vehicle ownership levels are still low, leaving open great opportunities to grow,? points out Abdul Majeed, auto analyst & partner, PricewaterhouseCoopers. He adds that greater visibility with well-priced models is the best way to attain growth and market share in the new markets.

In the immediate future, VW group?s strategy will be to keep up the excitement with the launch of new products in various segments and by strengthening its dealership and the sales service network. In addition, it will look at bringing down cost and making its products affordable to a larger audience?which it hopes to achieve by pushing on greater localisation.

In the final analysis, VGI does not plan to confine itself to passenger cars and has talked about entering the light commercial vehicles segment. ?At present, our focus is passenger cars; but we are preparing to sell LCVs in the market too. We showed the T5 and the Caddy at the Auto Expo last year. We feel these two models are feasible for the Indian market. However, the volumes in this segment will be limited to start with,? says Mueller.