At a time when global automobile companies are facing existential crisis because of the downturn, Germany-based Volkswagen is coasting along well. In the first five months of this year, when sales of other companies went down by 20%, Volkswagen sold 1.57 million cars, equaling its performance in the corresponding period last year.
So, what is driving the automaker? The company attributes its success to the ?sustained multi-brand strategy and ever broader model diversity?. In order words, it is the vast range of models, which has become the gamechanger for the company. Right from low-segment to super luxury cars, the Group has nine brands including Volkswagen, Audi, SEAT, Skoda, Scania, Bentley, Lamborghini, Bugatti and Volkswagen commercial vehicles. Each brand has its own character and operates as an independent entity in the market.
That is precisely the strategy being adopted even in India, and it?s paying rich dividends. In fact, Skoda India recorded sales of 16,188 units in 2008, which was a 28.5% more than 2007.
Company officials say the idea is to cover as many segments as possible and address all the needs of a customer, a strategy that has been followed for the last 15 years globally.
The strategy is complex because it contains different brands with different perceptions and images. In India, the company opened its counter in 2001 with the Skoda as a mid-segment brand with an assembly plant at Aurangabad. It was followed by the Octavia, Laura and Superb. It was then the turn of the Audi offering high-end luxury. Lamborghini and Bentley too have made their debut in India. And now the flagship Volkswagen brand is beginning to make a splash. The Volkswagen brand, which launched in India with the Jetta in 2008, is being expanded. It now has the high-end Phaeton, SUV Touareg, Passat and Fabia. Next in line are the Polo hatchback and the Polo sedan. The Group sees its presence in every segment as an advantage in the Indian market. For the customer, it is about having a choice across models, variants and price points. For the company it means if one segment is not going well, there are other segments that will move forward. This year Volkswagen will add 25 more outlets in India to take their number to 40.
In fact, Joerg Mueller, president and managing director, Volkswagen India Private Limited and Volkswagen Group Sales India Private Limited, has set a target of getting 10% of the market share in India. The Volkswagen group currently has 2% market share in India.
Automobile experts predict that the Indian market will grow each year from the present 1.2 million vehicles to over 2 million vehicles by 2014. The German carmaker is also looking at localisation of 50% of the brands it will manufacture at Chakan by next year and expand the supplier base further to achieve 80% localisation in the next two to three years, Mueller says.
Vikas Sehgal, partner, Booz & Co, a consultancy firm, says Volkswagen has come to India as it is an important market but for the global automotive company it is still not a market of any significance. ?In China, Volkswagen sells two million cars and in comparison in India it is 10,000-plus (the plant capacity is 1,10,000 units). Even if the figure goes up to one lakh, it will not amount to much as Volkswagen would then be doing around seven to eight million cars. For now it is too small but it will grow in future,? Sehgal says.
Critical to these strategies, which is also an indication of their seriousness about the Indian market, is the Rs 3,800-crore new plant commissioned in Pune in the MIDC Industrial Area Chakan. And what sets them apart is the way they have gone about this whole business of setting up the plant, finishing it ahead of schedule and running trial production of new Polo.
The USP of this plant is that it can handle four different platforms. The change between models takes only a few seconds, which means it can handle more models and platforms, giving the company flexibility. The plant can churn out a Polo or a Fabia every two minutes when it is fully operational. Thomas Dahlem, director, manufacturing engineering, Volkswagen India Private Limited, started work on the plant on 230 hectares at Nigoje Mhalunge, Kharabwadi site at Chakan in a truck container converted into an office.
Unlike other companies that started with building of the main office complex, Dahlem says they chose to set up the plant first and then build the main office. So, while the Fabia is rolling out and the Polo is almost ready to roll out, the office building is not yet ready and the teams are still operating from their makeshift offices on the shop floor.
?We were one year and seven months ahead of the time line we had set. Normally you need two and half year to set up the plant, but we did it in 17 months,? says Dahlem and adds that this is despite the labour shortage caused by Raj Thackeray-MNS drive that drove away migrant labour. At its peak, the plant had 3,500 labourers on the job.
As the plant gets ready, the company will move assembly of the Fabia from Aurangabad to Chakan. The plan is to assemble small volumes at Aurangabad and build volume cars at Chakan. According to Chacko, the company has implemented the Volkswagen Production Systems at Pune right from day one at the new plant. The Pune plant will operate in two shifts. There will be a gap of two hours between the two shifts. ?One shift completes its work and does not leave it for someone else to finish and the next shift walks in without disturbing the previous shift,? says Chacko.
The company has opted for 30-35% automation levels at the plant while in Germany it could be over 90% automation. The flexibility that the plant offers will enable the company to go in for frequent change and simultaneous production of different models depending on market needs and adjust faster to the product mix the market demands. This will be of great value in the ever-shifting consumer tastes in the market in India.
The company is investing in automation. While Kuka Robotics India has supplied around 80 industrial robots to this plant for different applications like spot welding and arc welding and handling, Kuka Automation India got the complete line order. Both these Kuka companies based in India have done the robotic installations. These lines will produce the VW Polo and Skoda Fabia for now and can handle another platform in future.
Will this be enough to grab a slice of the Indian market? An automotive industry representative says that the challenge will come from the volume segment and they will have to put on Indian thinking hats and not look at European models and plonk them here.
For the upper end cars, global marketing practices will work for Volkswagen but for cars which are priced below Rs 10 lakh, value-conscious customers with pre-decided functionality will look at the whole package. The company will have to do a lot of clutter breaking in the volume segment as competition has already started preparing for the Polo and in the last few months there were a spate of launches like the i20 from Hyundai, Ritz from Maruti, and Jazz from Honda. It promises to be a fierce battle and Maruti and Hyundai have the strength to take on competition but the rest of them will have to pull up and push the pedal.
The making of Skoda in India
Skoda was a totally unknown brand when it came to India. But it was chosen to open the innings in India. According to Thomas Kuehl, board member, sales and marketing, SkodaAuto India, in India the main criterion for buying a car is that it should be well built, reliable, safe to drive, fuel efficient, backed up with good after-sales, and complete value for money. Kuehl says Skoda Auto was chosen as the first brand from the VW stable to enter India so as to introduce the technology and engineering attributes of VW group?s products to Indian customers.
The first offering from Skoda in India, the Octavia, a well-built premium car, was considered the right buy. ?It was a car that made heads turn when it arrived and continues doing so even today. The Skoda Octavia has since then grown to be trusted and respected on the road,? says Kuehl. Further, the first Indian superhatch, the Skoda Fabia and the new Superb and the Skoda Laura have received encouraging response.
The Indian market response matched the company?s expectations. ?When it was launched, Skoda Auto India was hitherto known as a luxury brand. But after the launch of superhatch Fabia, Laura and Superb, we are now perceived as brands that signify money for value,? says Kuehl.
Skoda has paved the way in India for other Volkswagen brands to build on. ?While each VW group brand has its individual identity and claim, the success of any one brand reflects on all the group companies. Since the VW group companies synergise on the use of technologies, platforms and engines, the core automotive fundamentals can be seen reflected in all group products,? says Kuehl.
As Skoda completes its eighth year of operations in India, it has sold over 70,000 units of four models ? the Fabia, Octavia, Laura and Superb. ?The first half of 2009 has been an incredible phase for Skoda Auto,? says Kuehl. ?We are overwhelmed by the response that the New Superb received, and have sold around 900 units in nine weeks and have surpassed our targets,? he adds.