Volkswagen India Putting Down Deeper Local Roots

MUMBAI – Volkswagen reverses its India strategy and will develop vehicles specific to the local market, rather than rely on imports.

As recently as April, VW India President and Managing Director Mahesh Kodumudi said the automaker “is planning to make India a low-cost manufacturing and exporting  hub for both the emerging and  developed markets.”

But with Indian sales having risen 12.9% year-over-year through May, according to WardsAuto data, VW is investing in production capacity and local sourcing with an eye toward expanding the domestic market.

Launching in 2017 are the Bora, a subcompact version of the Polo sedan; the Tiguan compact SUV based on a new, low-cost platform; a new Beetle built on VW’s widely used PQ35 platform; and the Passat B8, a lighter, roomier and better-appointed successor to the B7.

Between now and 2017, however, VW will roll out a yet-unnamed subcompact SUV, the automaker’s first such product offered in India, as well as a refreshed Polo and Jetta, and a subcompact version of the Vento sedan.

Volkswagen is investing Rs15 billion ($234 million) over the next two years to raise its total investment in India to Rs60 billion ($940 million). Production capacity at the automaker’s two plants at Pune and Aurangabad will be increased from a combined 130,000 units to 200,000 by 2018. Output in 2014 was 116,853 units, up 18% from prior-year, WardsAuto data shows.

Part of the new emphasis on the Indian market involves recruiting local components manufacturers who can provide precision and quality at a reasonable cost. The goal is to increase local content from the current 65% to 70% to between 85% and 90%.

“Our focus is on building the brand,” Kodumudi says, but adds that frequent policy changes and currency fluctuations have hampered the auto industry’s growth in the past two years.

“Now we need the government to create stable policy framework and labor reforms, which need to be simplified,” he says. “This will help gain confidence of foreign investors. We also need to talk about a (free-trade agreement) with the (European Union) to help the growth of the industry.”