Volkswagen readies comeback plan

This article has been modified. Please see clarification at the end.

Weighed down by slowing demand and strong competition in the Indian market, German car maker Volkswagen (VW), which had kept a low profile in the past few years, is now preparing to have another shot at the Indian market.

The world's second largest auto maker has finalised products and investments for India while also overhauling its sales and distribution network for a smoother drive. The company will launch four new models in the span of two years in India in an attempt to claw back some of its lost market share and strengthen the Volkswagen brand.

The introduction of new models marks a departure from VW's long standing strategy for India. Until now the company was only refreshing the existing line-up while putting future investments on the back burner even as its parent company focused on defending its share in China.

The Indian market will get a compact sedan, a sports utility vehicle, a premium executive sedan and a lifestyle car over the next 24 months, a senior executive from the company stated. Plans are also afoot to get a compact SUV. While VW's existing line-up (Polo, Vento and Jetta) and the proposed new model line-up were and are being developed for global markets, the compact sedan will be the first model by VW to be made exclusively for the Indian market. Michael Mayer, Director, Volkswagen Passenger Cars India, said, "We are planning a considerable growth. I cannot share any numbers because it is still in the planning process. We see that India had a specific requirement and we would go into that segment with an exclusive car rather than saying is there a global demand for that type of car. It was more a commitment to India".

The compact sedan segment is the fastest growing segment in India with Maruti Suzuki Dzire being the market leader followed by Honda Amaze, Hyundai Xcent and Tata Zest. The other segment which has garnered interest is the compact SUV segment. As of now there is just one model, Ford Ecosport, in this category, but it will see the maximum action in the next two years. According to Mayer, "The compact SUV segment is very promising. However it is still very young in India. We have been pushing the decision for India to see what will be the right package. We want to see how that segment behaves".

The compact sedan and the compact SUV is what will drive volumes for the company as other models will be used more as a brand building exercise. VW will need volumes from the new models to arrest the slide in sales. Last financial year VW India sales closed at 45,018 units, a drop of 14 per cent compared to the year before. Volkswagen Tiguan, an SUV, will debut to compete against the Hyundai Santa Fe, Toyota Fortuner and Honda CRV to name a few. Passat, an executive sedan and lifestyle vehicle Beetle will make a comeback to India.

VW, which entered India in 2009 has a market share of 1.73 per cent (end March 2015), according to data provided by the Society of India Automobile Manufacturers. The industry ended the same year with a growth of 4 per cent selling 2.6 million units. Though companies like Maruti Suzuki, Hyundai, Renault and Datsun (Nissan) are aggressively targeting the entry level segment of under Rs 400,000, VW however has clarified that it wants Polo to remain as the entry car.

"We had a look at this (segment). But as long as it is driven by inexpensive light technology vehicles I think we will not be able to make a proposition because VW stands for safety driveability and build quality and you just cant offer that for Rs 350,000," added Mayer.

Speaking to reporters on the sidelines of the Hannover Fair last month Volkswagen India chief representative Mahesh Kodumudi said the company will be investing Rs 1,500 crore towards new products, increased localisation and production capacity increase as part of the Make in India initiative. It plans to increase production at its Chakan plant (near Pune) from 130,000 to 200,000 units per annum by 2018. The company has had problems with its dealer network in the past. "We have seen some overhaul of the dealer network. We had to stop the growth (of new dealer addition) but focussed on quality. On one side we had to part with some dealers in an amicable way and we also gained a few new investors", added Mayer.

An earlier version of this article erroneously mentioned one SUV brand of Volkswagen as Taigun. The correct brand name is Volkswagen Tiguan. The error is regretted.