Experts said apart from cutting costs and increasing resource efficiency, the merger is intended to increase contribution from the Indian operations, which currently account for less than 1%.
By Pritish Raj
German carmaker Volkswagen is likely to receive the National Company Law Tribunal (NCLT) nod to merge its three Indian subsidiaries, a move that will help in saving incremental costs, utilisation of combined resources and consolidation of powertrains and manufacturing capacities.
Three Indian subsidiaries — Volkswagen India, Volkswagen Group Sales and Skoda Auto India — will be merged and the resultant entity will be called Skoda Auto Volkswagen India Pvt Ltd (SAVWIPL), people aware of the development said. The merged company will be headed by Gurupratap Boparai as its managing director.
The first product from the merged entity will be a mid-size SUV, to be displayed at the Auto Expo 2020, and will compete with the likes of Maruti’s Vitara Brezza, Ford EcoSport and Hyundai Creta, among others, one of the persons told FE.
The restructuring of Volkswagen Group companies is part of the “India 2.0” project announced last year, where the operational control for the group in India was given to its Czech subsidiary Skoda. The move is also to combat poor sales and recurring losses, as a result of limited and expensive product portfolio, lack of options to upgrade and costlier parts compared to the competitors.
Emails sent to Skoda Auto India and Volkswagen Passenger Cars India did not elicit a response till the time of going to press. In July 2018, the Volkswagen Group had confirmed investments of Rs 8,000 crore in the project. People aware of the developments said, approximately 90% of the synergies would come from savings on purchases, R&D efficiency and manufacturing and tooling efficiency. Besides, the number of vehicle platforms will be reduced by 20% and engine families by 30%.
As a merged entity, the group aims to garner 5% market share by 2025, in a sharp deviation from its decade-earlier ambitious target to achieve 20% by 2018. With nearly half-a-dozen brands such as Skoda, Audi, VW, Porsche and Lamborghini here, the group has struggled to reach only 2% market share. Together, it closed 2018-19 with sales of nearly 60,000 units, at a time when total passenger vehicles sales were at 33.77 lakh units. Experts said apart from cutting costs and increasing resource efficiency, the merger is intended to increase contribution from the Indian operations, which currently account for less than 1%.
“The merger would lead to more bold decision-making capabilities and there will be one point of accountability,” one of the persons mentioned above said. The group had the most complex structure due to presence of a number of brands, different legal entities, overlapping of brand, sales and marketing operations as also a lengthy decision-making due to global approvals.
While Skoda managed to establish itself as a premium brand, products with similar designs and models and stiff market competition have hit the group’s sales volumes. Moreover, analysts said over-engineering of products in line with the European standards led to increase in final price of its vehicles, which continues to hurt the firm. “Indian market is driven by cost-conscious customers, therefore showing value of something a consumer doesn’t want will hurt demand,” an analyst.