Volkswagen finalises 3-prong India strategy, overhauls retail set up

Stefen Knapp, Director (Passenger Cars), Volkswagen India, told Moneycontrol , “We started with 80 dealers, now we have 63 and we will take it to 50 eventually. We launched one pop-up store in Bengaluru and will open 30 such stores this year. The key focus for these stores is to have them in Tier II, III and even Tier IV cities. Volkswagen India is the first one to do so anywhere in the world. The real estate market is so expensive and you need to find such solutions.”

Volkswagen does not have large volume generating models since its entry price stands at Rs 5.71 lakh (ex-showroom) is much higher than that of Maruti Suzuki, Hyundai or Tata Motors at around Rs 2.94 lakh (ex-showroom).

Given the 23 percent sales decline last year (compared to a two percent industry growth) to just under 35,000 units, the pressure on VW dealers is higher than its rivals. The company has been struggling to keep dealers interested in its brand despite there being no launch of any breakthrough model since the past several years.

But with new models now less than a year away from launch, VW is keen to get its retail strategy in place without putting any additional financial strains on its existing dealers.

“We have higher digitisation in smaller showrooms than regular ones. We have only six-to-seven sales consultants as compared to 25 for a regular showroom. On an average, investors needs to sell only seven-to-nine units a month before the unit becomes profitable. We have a profitable dealer in Punjab, who sells six cars a month,” Knapp added.

More than 300 dealerships across players have shut shop in the last 10 months due to the on-going downturn. Dealers have been unable to meet their funding requirements due to a clampdown by banks. Despite the unusually high number of discounts, sales in July marked the sharpest fall in 19 years, according to data shared by the Society of India Automobile Manufacturers (SIAM).

The entry of new brands like MG Motors, Kia, Jawa and Benelli and a host electric vehicle startup companies have further compound the worries for established players as investors try to experiment with new auto brands based on incentives offered by companies.

“My network is 80 percent multi-franchised, which means if they see love for a competitor, their love for us sometimes get cold. But if they are a big entity, their love for us is pretty hot. These partners have a big employee base of 600-1,000. We will actually go to 95 full-fledged dealerships (service, sales and spare parts) at the same time and will increase the touchpoints to 110 to 150,” added Knapp.

Volkswagen’s Coimbatore-based dealer Ramani Group had three full-fledged showrooms in Salem, Madurai and Tirupur (all in Tamil Nadu). The dealer then added three more showrooms to improve scale from the VW brand itself.

“So this dealer is getting a bigger reach but at a lesser expense. That’s the strategy we are adopting all over the country. These partners are bigger and therefore they have more synergies and economies of scale. They are also more loyal to us because they have a larger exposure to us,” Knapp explained.