Swati Khandelwal and Shilpa Dhamija, CNBC-TV18

Prices of cars from the Volkswagen group are expected to drop, as the company kick starts production at its new plant in Chakan. The carmaker has lined up a slew of launches including the premium sedan the Jetta to corner a 10 percent market share in India.

Volkswagen group companies Skoda and Audi, assemble cars like Skoda Fabia, Audi A6 and the Volkswagen Passat in India. But now the German major hopes to convert India into a manufacturing destination. This new plant in Chakan on the outskirts of Pune will be used to manufacture the Skoda Fabia first. Volkswagen hopes to localize as much as 80% as against the current 50%.

Jochem Heizmann, Management Board Member, Volkswagen, “We want to do things here in India on an economic basis. We have to localize. Ideally, it would be to have 100% localization. We will start with a final assembly of engines here. This is decided. The other thing is to talk about more localization is manufacturing of engines. It all depends on volume. We have a variety of engines. So, in the future we may consider it"

The construction of the plant will be completed by next year. The first car that will be rolled out from this plant will be Skoda Fabia and then two more cars on polo platform - a hatchback and a sedan.

More localization, means lower costs and so the Fabia which is currently priced at about Rs 6.5 lakhs will be much cheaper. This would help Fabia take on the Maruti Swift and help shore up volumes. The Chakan plant will also be used to assemble bigger cars from the Audi stable and even the VW Passat and Jetta. These cars could even be manufactured here at a later stage.

Heizmann said, “We could do that if the volume is high enough. At present there are no concrete plans to do that. But maybe in the future it can be more. We have a concept and a layout to be more flexible here. To be flexible for our products and for additional volume and things will go on.”

With almost 10% share of the global car market, VW is betting on emerging markets and especially India. With just about a 1% of the indian market, VW wants to grow upto 10% by 2012. It has already invested 3600 cr rs in India.The group plans to introduce its small car UP and may even bring in the beetle. The next big launch after the Audi A4, slated for the 16th of July is the VW Jetta, a premium sedan. The company will also launch its sportscar Audi R8 in the third quarter of this year.