This Week in Auto: Volkswagen group readies Rs 7,900 crore for India; Volvo comes out of the shadows of its German rivals

With just one in every 100 cars sold in India being a luxury car, there is a lot of headroom for growth. With a GDP growing at 7 percent, there isn’t a more lucrative automotive large market in the world as India.

Hence, luxury car manufacturers are making a beeline for the country, armed with every new launch from a few months ago in some of the Western markets. Volvo is one such company who is fighting hard against the German triad — Mercedes-Benz, BMW and Audi — to make a mark in India. More on this later in the copy, but first, here’s a look at all the important developments in the auto space during the week.

Czech car maker Skoda Auto said it will invest 1 billion euro (Rs 7,900 crore) in India to develop a range of new products, starting with a sports utility vehicle (SUV) that will be launched in 2020. The company is setting up a product development centre and expanding production capacity at Aurangabad. It will also start engine and transmission production and double its retail reach to achieve its target of five percent market share along with Volkswagen in the country by 2025.

Swedish luxury automotive brand Volvo launched the XC40, its smallest sports utility (SUV) in India, at an introductory price of Rs 39.9 lakh (ex-showroom). This is the 10th model by Volvo in India, and its third SUV. The XC40 has been on sale outside India since last year. Volvo is offering only one engine and one trim as of now on the XC40.

Mercedes-Benz retained the top spot in India’s luxury car market after posting 12 percent growth in the first half of the year and selling an average of five luxury cars every hour. The German company sold 8,061 luxury vehicles during the period of January to June this year. BMW came in second with sales of 5,171 cars.

Hyundai Motors India is expected to manufacture and export electric vehicles from India, the company's CEO YK Koo said. He stressed that an electric SUV would be launched in the second half of 2019. Although he did not mention which SUV would hit Indian roads, reports suggest that it could be the Kona, which was unveiled at the 2018 Geneva Motor Show and showcased in India at the 2018 Auto Expo.

Ford India said it is recalling 5,397 units of its popular sports utility vehicle EcoSport to rectify faulty front lower control arm and driver and front passenger seat recliner locks. EcoSport, produced at the company's Chennai plant between May 2017 and June 2017 numbering 4,379 units, are being inspected for weld integrity of the front lower control arm, the company said in a statement.

To the horror of India subsidiaries of German, Swedish and British luxury car makers, the government slapped not one but two increases in cess during last year.

While the GST at 28 percent and the cess of 25 percent over it was enforced in 2017 itself, India’s finance ministry raised customs duty on CKD kits to 15 percent from 10 percent besides introducing a Social Welfare Surcharge of 10 percent to replace the Education cess of 3 percent charged earlier.

To give an understanding, all these hikes pushed car prices typically by Rs 3-6 lakh on a Rs 26 lakh car. The Volvo V40, for instance, which costs Rs 25.49 lakh in 2017, now comes at Rs 31.91 lakh (ex-showroom).

Despite the hikes, three of the top five luxury car brands posted a double digit growth during January—June period. Mercedes grew by 12 percent, BMW by 13 percent and Volvo grew by 33 percent. Audi and Jaguar Land Rover did not disclose their numbers.

Demand for luxury cars remains upbeat despite these setbacks, which is what makes the Indian market the most attractive in the world. Take the case of Volvo, the most notable multi-national brand from Sweden and also the smallest of the five luxury car makers in India.

Demand for its cars and SUVs is such that its headquarters in Sweden is struggling to get the required number of vehicles for the Indian market as demand continues to outstrip supply. Earlier this week, the company added yet another SUV to its portfolio which is the most affordable in its line-up.

In all, Volvo has 10 models on sale in India. While its bigger peers make all the noise, Volvo has steadily grown in the shadow of its German rivals. But now, the company says it ready to take the next big leap that will further demonstrate its confidence in the India growth story.

In 2020, Volvo will become the first luxury car maker to start local assembly of a plug-in hybrid in India with the XC90 Excellence. The Swedish brand inaugurated an assembly plant in Bengaluru in late 2017 where it assembles the XC90, S90 and will add XC60 soon.

The decision to make a hybrid in India comes even before Volvo’s rivals are yet to conclude about their intentions to switch to cleaner emissions in the future. This catapults Volvo into the limelight, hoping to make up for the slow start in the previous years.