Volkswagen's India share dips to 1%, firm seeks revival with 2.0 strategy

It may not be going the General Motors way. But the world’s leading carmaker Volkswagen is now stuck with a market share of just one per cent in the fifth largest and one of the fastest growing car markets, India. Its market share used to be at two per cent in FY14. Skoda, another brand from the German car maker also operates in India (besides luxury brands like Audi and Porsche) with a market share of 0.47 per cent. General Motors exited India in mid-2017.

In July this year, Volkswagen Group decided to reboot its India dreams with an investment of Rs 79 billion that will go into capacity enhancement, R&D, new technologies and products specifically aimed at the Indian market. The exercise is referred to as its India 2.0 strategy. Both Volkswagen and Skoda will get two new cars each by 2020 developed on a common platform, with a localisation in excess of 90 per cent. A high localisation will allow them to be price competitive and bring down the cost of ownership.

Volkswagen, on an average, sold about 3,000 cars every month to dealerships in the first half of the financial year 2019. The corresponding average last year was about 4,000 cars. The brand’s volume looks under pressure while the industry is expanding. The current product line-up is old and is not generating enough sales. The situation is unlikely to change before it gets the new set of vehicles in 2020.

The company till then, will have to ‘battle’ with the existing cars, said Steffen Knapp, director at Volkswagen Passenger Cars India. “Our products are not the newest. On an average, most products are eight years old. We are bringing newer features and engines in them. But India is primarily a novelty-driven market. The flashier a car is the more excitement it generates,” Knapp told Business Standard.

Volkswagen entered India a decade ago and set up a manufacturing facility in Chakan at the outskirts of Pune in Maharashtra. It has five products in its portfolio including the Polo, the Vento and the Tiguan SUV. Knapp said the brand is just ten years old in India and it takes the Indian market seriously.

“The first question I was asked by the media was if the brand is going to leave the country. I always say this brand has never left a country. It never did. We have a pretty sustainable way of doing a business. We might have had a lot of crisis in VW. But we have a clear direction to stay in the country”, he said. Knapp was appointed director in June last year.

In spite of its small share in the domestic market, Knapp prefers to be confident. “We like the position we are in, we have nothing to lose. We can build everything now for the next level. It is not jumping about jumping to two per cent and going down to 1.5 per cent ...it needs to be sustainable growth”, he said.

The company hopes to hit a market share of three per cent in the next five years. “We are on our way to a higher market share. We had 3 per cent share in 2011/12 when we launched Polo...but it has been around 1.2-1.5 per cent for some time. This market share data is pretty difficult to capture as we measure wholesale here. We don’t know the retail share as there is no statistics”, he said, claiming that the company does not believe in saddling dealers with stocks to show growth in wholesale numbers. “Our competitors’ stock situation is running high. We are not overdoing it”.

The company said it will focus on getting the ‘fundamentals’ right in the next couple of years by bringing products with high localisation, reducing the cost of ownership, improving marketing and sales through regionalisation of approach and gaining loyalty of customers. “In India, the loyalty rate is pretty low and we want to increase it...people jump at anything new as most brands do not have a long history here”, said Knapp.

Volkswagen wants to get into a higher volume scenario.  It said it wants to become more ‘Indian’. “At out development centre in Pune we are hiring local talent and an Indian leader who will be responsible for the project. We are taking local technology...We are doing things in a more Indian way because that is the only way to succeed in this country”, said Knapp.

Will the 2.0 strategy work? “I am not living in the sky. I believe we have the right strategy. My team and network believes in the strategy. Fortunately, Wolfsburg (the German headquarter) also believes in the strategy...that is a very good starting point”, said Knapp.