Disharmony Between Volkswagen, Skoda in India

MUMBAI – Volkswagen Group is planning a major product push in India but is getting pushback from its Skoda small-car subsidiary.

VW says it will invest €570 million ($720 million) in India to launch seven new vehicles in the subcompact sedan and SUV segments over the next two years, doubling current annual output of 100,000 vehicles at its plant in Chakan.

The German automaker hopes to double that investment over the next five years to build an engine plant and increase local content in its vehicles from 70% to 90%. Those moves would help make VW more competitive by lowering tax liability and help overcome foreign-currency uncertainties.

But Skoda India is withholding further investments in India, citing unfavorable government policies. Sudhir Rao, chairman and managing director points to a recent case involving Fiat, in which the government collected excise duties on vehicle discounts, and a Competition Commission ruling in which about a dozen manufacturers were fined for limiting distribution of spare parts to their dealers.

“We would like to invest more in the future,” Rao says, “provided these uncertainties are removed.”

Volkswagen, meanwhile, is shaping a strategy around market conditions in India, where combined VW and Skoda car sales through August were down 35.4% from a year earlier, according to WardsAuto data. It plans to develop vehicles on existing platforms that are less than 157 ins. (4,000 mm) long and provide ground clearance sufficient to navigate the country’s rough roads.

The automaker has several minicars including the Fox and Up! (a rebadged Skoda Citigo), both of which are sold in South America and Europe. But VW does not wish to adapt older vehicles to the Indian market, says Michael Meyer, director-passenger cars for VW India.

“VW would not like to damage its premium image by bringing in older-generation products in India,” he says.

Skoda is consolidating its position during the current standoff, streamlining its dealer network and upgrading the quality of its service. The automaker is developing a subcompact hatchback codenamed SK260 on the Rapid platform, which it wants to use for several models.