The Polo, however, will be launched with 80% local content and will be redesigned keeping the Indian market in mind. It would compete with the Maruti Swift, Hyundai Santro, Tata Indica and Hyundai Getz. The company would initially import engines and gear-boxes, but would later examine manufacturing them locally.
VW plans to tweak the Polo engine and the length of the car to leverage the concessional 16% excise on small cars, against the 24% for large cars.
VW is the last of the leading global carmakers to enter India, although group companies Skoda Auto and Audi already sell here. It joins Toyota, Honda, Ford and General Motors, all of which have announced plans to launch a small car.
Small cars account for nearly 70% of the 1.2-million unit domestic passenger car market. In April-September the small car segment recorded a 25.41% growth rate, touching 3.83 lakh units, compared with 3.05 lakh units in the same period the previous year.
VW has already announced a manufacturing facility in Pune with an investment of Rs 2,400 crore. The upcoming car unit is expected to start production in 2009 with an initial capacity of 1.10 lakh units.