German automotive giant Volkswagen is readying for a strong comeback in India complete with a fresh round of investments, a renewed product line up, and a high degree of local manufacturing.
Under a new plan internally titled as ‘India 2.0’, Volkswagen will develop a range of products, starting with a compact sports utility vehicle (SUV). There will be 'substantial' investment involving a minimum of Rs 8,000 crore spread over the next few years.
Based on an all-new platform called MQB A0 IN the SUV will be targeted at the buyers of Hyundai Creta, the current best seller in the segment. Volkswagen stands to benefit from the plans of Skoda, which has taken the lead in developing products given its better experience at handling costs.
Talking to Moneycontrol, Steffen Knapp, Director, Volkswagen Passenger Cars India, said: “As a logical step we are looking at the A0 SUV segment, which is one of the fastest growing segments. These are not the sub-4 meter class. We will have something (on the lines of) the (Hyundai) Creta. Because we think they have the highest potential of growth and business case and fits perfectly in our target group.”
Skoda will also have its own products on the shared platform. In addition to the SUV, the Czech automotive brand is also looking to re-enter the hatchback space, which it had abandoned with the phasing out of the Fabia.
“In terms of costs, Skoda has the flexibility. It is also more experienced than Volkswagen and we will jointly develop products for the Indian market," added Knapp.
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As of now, just 80 per cent of the content for three of Volkswagen cars is made in India. The company plans to increase this to 90 per cent to lower costs. Engines and transmissions are currently being imported by VW in kits and assembled at its Chakan plant in Pune.
The plan is to manufacture the powertrains (engine and transmission units) at Pune which will push up the localisation level to 90 per cent.
“To move to the next phase, growth can come on the basis of localisation and that can come only on volume, which can happen on (new) investments. Yes we are investing which we need for capacity in order to give us the base for our cost. We have around 82 per cent localization on the Polo, Ameo and Vento and we need to be 90 per cent in order to be successful. It will also include powertrain," added Knapp.
When asked to outline investments earmarked for India Knapp said it would be ‘substantial’ given the products need to be developed from scratch as well as local manufacturing of powertrains has to be started.
“We invested Euro 825 million in the Chakan plant, which has a capacity of 200,000 units a year. It’s a really substantial investment that we are talking about, it’s in billions," added Knapp.
The India 2.0 project, however, does not allow Volkswagen to go below its entry level car Polo in India as it finds the price parameters too tight.
“India is one of the most competitive markets in the world. The A00 segment which is the sub-Polo class is very difficult to make a possible business case. And that is not our position," added Knapp.
Knapp also quelled fears about Volkswagen’s future in India where it was speculated that the German company might go the General Motors way of quitting India sales to focus purely on exports.
“10 years is a proof of our consistency of leading the brand in the right direction. The first phase of our journey was to establish the brand, getting the network rolling, investing in a local plant. It was proof that we are taking it very seriously in India. We have built the foundation and now it is time to go the next step. If you look at our brand history we have never backed out of any country. German way of doing business is staying for the long term business. (Getting out of India) was never a discussion point," added Knapp.