One of the most iconic automotive advertising lines was Volkswagen’s “It’s more fun to take the bus” as part of the sales pitch for its Microbus in the late 1970s. But it seemed that VW had missed the bus when it came to the Indian auto market.
However, the last two years have seen this market’s preference realigning again with the share of sedans stabilising and even starting to grow even as that of the ever-popular hatchback or small-car category dipped, which means that carmakers are rethinking their product offerings and launch strategies.
Škoda Auto Volkswagen India is the wholly owned Indian subsidiary of German automotive giant Volkswagen Group, and its brand VW Passenger Cars is already seeing a volume shift driven by a formula of local content, sedans and multiple models.
Ashish Gupta, director at VW Passenger Cars India, says that in 2020, sales of cars from the entry-level hatchbacks to premium hatchbacks segment that constituted around 50 percent of the market went down to around 42 percent in 2021. In tandem, sport utility vehicles (SUVs) segment, the current favourite among Indian buyers that also includes SUV-inspired crossover models, grew by a similar proportion, from 30 percent to almost 40 percent.
“So, the corollary is that actually the growth in the SUV body style came at the expense of the hatchback body style,” he said.
At the same time, sales growth of sedans remained constant at 11-12 percent, but in 2021 the off-take of premium midsize sedan segment (cars above 4 metres in length) actually grew 4 percentage points to 22 percent. Part of it is because there have been very few options for customers who have not lost their hankering for a sedan.
Cars with a length under 4 metres enjoy a tax benefit, which led to almost all manufacturers launching vehicles in this category, with an eye on buyers in a famously price-sensitive market.
To capitalise on the nascent demand for more premium models, though, VW went ahead and presented offerings with a distinctive European aura in the midsize segment. This is something that it and sister brand Skoda did in the ever-growing compact SUV space as well. In April, for example, Gupta says that they sold significant numbers for the Taigun and the Kushaq SUVs, combined.
“With the Virtus (its new sedan) launching in the first week of June, I’m very confident that the midsize sedan segment will actually grow by almost 60 percent,” he added.
VW hasn’t shared prices for the car but it is expected to be in the range of the Skoda Slavia which has an ex-showroom price of Rs 10.69-17.79 lakh.
Last year, VW sold around 27,000 cars and so far this year has already generated around 15,000 units in sales. Sales for the first quarter have almost doubled to 11,223 over last year when it was around 6,252, VW officials shared.
Suraj Ghosh, director at S&P Global Mobility, says that there are two or three factors supporting sales. “They harnessed the requirements of the SUV segment and have two products, the Kushaq and the Taigun, and the second is that they took a gamble by reintroducing sedans in a segment where not many others are taking a chance, which has indicated that good products have a demand,” he says.
“Their (earlier) limited success and maybe even failure was high pricing which has been rationalised. Even if you have safety features and tech, you have to be competitive. Spare parts don’t cost a fortune and lead time of replacements have been lowered. Now the trick is to sustain this performance and keep bringing more products like this. They would have to keep working on keeping the buzz going,” Ghosh noted.
There are more than 4 lakh owners of VW’s Polo and Vento models at the moment, and the German carmaker hopes that these drivers will upgrade to the Taigun SUV or Virtus sedan. The Virtus like Skoda’s Slavia is based on the MQB A0 IN platform, which will have up to 95 percent localisation, meaning it will be cheaper than a car that would have had, say, 60 percent or 70 percent local content.
Gupta says that last year the premium midsize sedan segment had basically three offerings—the Honda City, the Hyundai Verna and the Maruti Suzuki Ciaz—and sales volumes were around 85,000 cars in total.
“We expect that the industry will grow by almost 60 percent to around 140,000 of which we are looking at a 20 percent share,” Gupta says. If that it pans out as planned and VW sells as many as 50,000 cars a year with around 2,000 to 2,500 Virtus cars and around 3,000 Taiguns every month, and Skoda chips in with the Slavia and the Kushaq, annual sales could for the first time surpass 100,000 cars for just two product lines.
The last time the group crossed 100,000 cars in annual sales was 2012.
While the migration might be happening from sedans to SUVs and hatches to sedans, how is VW coping given that its hatchbacks Polo GT and the Polo are getting long in the tooth?
Gupta says that the Polo and the Vento were based on the old PQ 25 platform and India was the only country that was actually still producing cars based on this platform. But production of the Polo has ended and it is out of the market now. “In fact, April was the month when we sold out all the Polos that we had produced for this year so the old generation is gone,” he says.
The new MQB A0 IN platform is a very scalable platform and you can build different body styles on it so the possibility of bringing in the new generation of the Polo always exists, Gupta says. “It’s a question of whether it makes a business case for us and for the customers. The new Global Polo is more than 4 metres.”
The other thing any carmaker has to be is to be nimble about is electric vehicle (EV) policy.
Gupta says that it’s a very interesting time to be actually thinking of moving towards EVs. “The only thing which as an OEM we would want is these policies to have stability and continue for a longer time, that’s something which I think remains to be seen that once EVs get adopted to a larger degree that such policies still enable electrification because even if you decide today, to be honest, that we want to do electrification in India, it’s a three- to five-year process.”
Are there core challenges the brand sees ahead for India?
“I think one of the challenges which remains is the semiconductor topic right now and the supply constraints. In fact, in Q1 our assessment was that by Q3 the situation would have eased out, the bottlenecks and the backlogs that you had would have actually eased out but the situation in Europe with the geopolitical situation there and also the fresh lockdowns in China have not helped,” Gupta says.
“So, I feel at least for this year the situation will continue. It’s not that those supplies have totally stopped but it’s the instability of supplies. It’s like you never know when the next consignment is coming in and that upsets the entire production schedule. The kind of variants which are in demand, you’re sometimes not able to supply that to the market, so you have to make a lot of compromises,” he added.
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