Bentleys, Porsches Mask VW Group’s Struggles in India

MUMBAI – The super-luxury Bentleys, Bugattis, Lamborghinis and Porsches seen on Indian roads can trace their roots in the market to Volkswagen Group’s low-end Skoda introduced in 2001.

The German automaker today offers 25 models in more than 100 variants in India, including five VW brands. It assembles the entire range of SkodaAuto (as the brand is called in India) cars, four Audi models and the VW Passat and Jetta in the country and imports the rest as completely built-up units.

The VW India plant in Chakan has annual capacity of 110,000 vehicles and offers the most up-to-date facilities and manufacturing systems. The automaker has penetrated into the interior of India with 122 dealerships in 113 cities and towns.

But since triple-digit sales increases in 2010 and 2011, light-vehicle VW and SkodaAuto sales have fallen sharply, with deliveries plunging 19% to 82,239 units in 2013 from 101,551 prior-year, according to WardsAuto data.

Last year’s tally gave VW Group a 2.7% share of the Indian market. Aiming for a 10% share by 2020, the automaker has launched a turnaround plan focused on new products, quality service and exports – which tripled last year to 32,588 units.

The automaker does not wish to enter the highly price-sensitive small-car segment in which vehicles less than 157.5 ins. (4,000 mm) in overall length are in the lowest tax bracket.

“We are a premium car company and we want to deliver in our segment,”

Managing Director Mahesh Kodumudi says.

Planning to build market share has not been easy, however, owing to the weakening rupee and rising interest rates.

“India’s regulatory framework is not very stable and until such a framework emerges, it is difficult for us to plan our future strategies,” Kodumudi notes.

Adds Sudhir Rao, managing director-SkodaAuto, “VW Group is not looking at volumes ’til 2016, but the first priority is on brand-building and evaluating our strengths and weaknesses.”

For now, the automaker is trying to grow exports at the expense of entrenched rivals Hyundai, Maruti and Nissan. VW also is studying whether to invest $250 million in an engine plant in India.

SkodaAuto India started with an investment of $132.7 million in a 15,000-unit-capacity plant in 2001. A $50 million investment in 2012 boosted capacity to 40,000 vehicles and the VW subsidiary produced 35,555 LVs that year, only to see output fall by nearly half in 2013, to 18,322 units, Ward’s data shows.

VW Group will consider developing India-focused new products once the brand has become better established in the country, Rao says. This despite 13 years in the market, millions of dollars in investment and development of a sales network with more than 100 dealerships.