VW to invest Rs 8,000 crore under India 2.0 plan

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VW to invest Rs 8000 crore under India 2.0 plan
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PLANS TO SET UP DEVELOPMENT CENTRE IN PUNE

By: Sheeja Sasindran & Shashwathi Sandeep

The German automotive manufacturer Volkswagen, enthused by the recent successful launch of Passat 2018 and Tiguan,will revamp its operations under ‘India 2.0 plan’ by investing Rs 8000 crore. The new projects include a development centre also.

“We are establishing a development centre in Chakan, Pune we have also hired a chief programme engineer and the work has started; we are hiring only local engineers to bring out local products with local intelligence. We are already on the products and the first product will be a sustainable brand. A brand is a promise and we need to constantly deliver our promise,” Mr Steffen Knapp, Director, Volkswagen Passenger Cars in India, told
Automotive Script.

“We will also soon launch a mobile-linked system Connect,which is connected to the car. Customers can download the VW Connect app and use the Bluetooth to see a lot of things about the vehicle – for instance, the fuel condition of tyres, or wheel bearings, the due date of the next service and can the if the way to it is lost. If a customer is very cost conscious, the system has an electronic log-book, and he can see all the costs for the car. There is a tool with which he can improve his driving style; there is a lot of in-car support for the customer as a driver”. he said.

About the new products in store for India, he said: “We have lot Of products that we are selling. The big thing, from the product point of view, which I can tell now, is the AO SUV, which we will launch in the framework of the India 2.0 strategy. We have launched a couple of cars in the past two years, which we have to exploit. Just a few months ago we launched the 1.0 ltr MPI on the Polo and Arneo. We are constantly improving our existing products,” he said.

Mr Knapp, who has been in India for a year said: “l think the India market is one of the most challenging ones in the have a country which has been driven so much by the value for money. Customers here need only the best. It is a very aggressive and dynamic market place; there has been a lot of change in the past few years. Ride sharing, as a concept, also has gained momentum; it is becoming a very modern automotive industry.”VW to invest Rs 8000 crore under India 2.0 plan

THE CHALLENGES

Still there are quite a few challenges. “Airbags and speed alerts are becoming compulsory for pedestrian safety. This requires Structural changes to the car. We always have airbags in our cars; now our competition also needs to come in with airbags; let’s see what does that mean in terms of cost to the customer. I think the biggest Challenge is the growing population in the cities. About 30 percent of Indians are living in big cities: it is being said that another 10 percent in the next five to ten years Will move to the cities. In the big cities, there is a dip in the industry, since the customers have stopped purchasing cars, as there is no parking space or it is difficult to get one. They are instead opting for Ola and This is Of the biggest challenges that we are facing because the infrastructure is not growing at the same speed as the population and that is a problem,” Mr Knapp said.

“BSVI is a huge challenge ahead of us. All the manufacturers have to comply with very tough emission rules. This is a big step for the industry and we have to see what this is going to trigger,” he said.

OPPORTUNITIES

The growing middle class is seen as one of the best opportunities for Volkswagen in India. “We see that the middle class is growing; so there are a lot more people who can purchase a vehicle and that is an opportunity for u s. With the growing level of education, people are willing to buy vehicles for the factors which are the core of our brand quality, safety and fun to ride. In particular, safety is becoming very important for customers here. Whereas, in the past, it was pure mobility; now they want to be safe and also keep their family safe; they want better comfort; want to be connected with the social media with assistance from the car; this is getting more and more important and that is an opportunity for us at Volkswagen,” Mr Knapp said.

“Now it is value for money. In the past, only the price mattered for Indians. Now, they are developing the value for money concept in a very tough sense. That’s a different set-up,” he said.

MARKETING

Since the Indian market is much more dynamic than before, Volkswagen has different marketing approach for different target groups to its vehicles. “Our positioning in the Indian market is as the most accessible premium brand.Our core product strengths that we specifically present are quality, safety and fun to drive. These three elements, combined by the German engineering that has still some value in India, are ingrained in Our brand. As a brand strategy we talk to the affluent middle class customer,” Mr Knapp said.

In order to illustrate this point he said: “Let’s take Chennai, where we have an hub with highly educated and well-paid people who can afford to go for a polo, an or a Vento later an. We look at their trigger points in life; as they go up in life passing through d phases like marriage, having a baby, professional advancement we trigger them with the Polo, Ameo or Vento as the case may Clearly, the group for us is the well educated people who have a decent salary and who are prepared to pay more for quality, safety and fun to drive.”

He said the changing lifestyle in India is helping them. “In India, there a huge difference between classes; there were extremely poor and extremely rich people. Nothing much has been happening in the middle and that is changing now, We have a high quota of middle class driving our car, especially Polo.”

There is also the factor where people are getting global and westernized; people here are very well-informed. I was in Barcelona, in Spain, before I came here. 14 hours from Barcelona via Frankfurt to Mumbai to the same Shops. What I want to say is they are getting more and more global here. The lifestyle has and people here are more westernized. That makes a good base for us because that makes international brands like Volkswagen very attractive for such customers,” he said.

Since India is a huge market Volkswagen has spread its wings across the length and breadth of the country. “Volkswagen as such, has its plant in Chakan with an annual capacity of about 160,000 – 180,000 cars. But, there is a plant for Skoda in Aurangabad. The group is getting bigger; we are working with 12 brands; we have Volkswagen which is the mother, then we have Skoda, Audi, Lamborghini, Porsche, MAN Trucks, and Scania; here we have also Ducati. Every company brand is producing or at least selling in India: Mr Knapp said. 

It was in this background that Volkswagen came up with Ameo, a car, which was specifically designed for the Indian market. “Let me tell you a little bit of its interesting history. We started the business with one car, the Passat, in 2007, and that was more to see what would happen for our cars in India and to get ourselves ready. Then, we made the next big move which was important for us; that was our investment in our Chakan plant, we went into volumes and we have improved. We have got investment, man-power and a huge plant. We had Polo and Vento being produced at Chakan. At about 11 percent, the Sedan segment is also pretty big. The Polo segment is 24 percent- it is the biggest after the small cars and Vento is only six percent. It is a pretty substantial segment and interesting for us to look at”.

“It was then we decided to have a product developed, produced and sold only in India. That is Ameo, because there is a unique case of sub-four-meter taxation here; no other country we get less tax rate for similar cars. It is 82 percent localized; only the engine and transmission are imported,” he said.

MARKET SHARE

According to Mr Knapp, Volkswagen group has a market share of 1.86 percent. For our accessible segment, that is Polo, Ameo and Vento, we are running at 3.4-3.5 percent. In Chennai, we have the biggest market share of 7.1 percent. We are very strong in this particular area. Our biggest dealer groups are in Tamil Nadu followed by Kochi,” he said. The company has 121 dealerships across the country.

But is this a good number? He answered, “What we do as a brand is to make people aware of it. Today, if I ask for five automotive brands, 32 percent will say Volkswagen. That is a big leap; we came from zero. We are getting into the minds of the customers. With the growing income levels, increasing awareness about environmental issues and safety and the high density of mobility on the roads here, the relevance of our product proposition for the Indian consumer is growing. First of all, what we offer as a product is affordable and secondly it is relevant for them. For a majority of our customers Polo is their first-time buy. Earlier, people bought it as a second car.”

It also has a lot to do with the way that Volkswagen has positioned itself here. “We are in the upper segment in terms of our product features, content and pricing. But we provide value for money. We have technologies like the TDI, stand-alone engine technology, and galvanized steel that makes the car stiffer. Our product quality is definitely premium. Our new cars that look nice and shiny will be the same even after four years. This is because we are doing two or three more paints on the car and the paint is of better quality. All these are important for us, and this is how Volkswagen became the biggest automotive manufacturer in the world,” he said.

Apart from dealerships the company seems to be coming with alternative and innovative ways to increase its presence in the Indian market. “There are different ways to increase sales. India’s cost structure is lower than in other countries. But, within India, the costs are going up. The dealerships have to pay for the showroom and the service facility – the costs are very high. Our method is a little different. We need full-blown dealerships at the same level as we have today, and we increase the touch base for more customers by using cleverer solutions. We have small stores in malls and also pop-up stalls, where we display one of our cars. There will be online sales too. We will have different forms of touch-base with the customers: Mr Knapp said.

Volkswagen is digitising its after-sales services. When a customer arrives at the service centre the service advisor takes him to the so-called active reception. He explains the complete vehicle to him – what could be the issue, and what he should do. He will get SMS from time to time. When the car is ready, he again gets an SMS and he can go for the delivery option or pick up the car himself. A lot of the dealerships have a glass wall inside where the customer can watch what is happening to his car and see the expertise of the people working in a very tidy work area. Our cars are the most complicated to repair and service as their technology is at a different level. Every dealership has a two-year trained master technician,” he said

ELECTRIC VEHICLES

With the electric vehicles (EVs) becoming the buzzword in the industry, Volkswagen also has announced its decision to bring out a slew of EVs in the coming years. “In 2020, we will launch in Europe, a car called ID, which is being made in the heartland of the automotive industry, so it’s going to be, first of all, affordable. Then we will come with, maybe, 50 to 70 new models. Volkswagen is not always the first one; we are kind of a follow-up, but when we do it, it is massive. We have created a brand called Moia aimed at developing future mobility solutions. We have also acquired the Israel-based Gett, a big ride-sharing company. We are doing a lot,” he said.

What about India? “I think EV is an absolute necessity in India because the environmental situation here is really difficult, and we need to do something about that. Electrification is one of the solutions for that. But then, it requires a lot of 360 degree thinking. One is infrastructure; it is not only charging. In a city like Chennai, if a few thousand EV owners simultaneously plug in the morning, the whole system might collapse. So, it is not only the charging infrastructure, but also the stability and the energy supply which needs to be there,” Mr Knapp said.

“We also do not have solutions like fast lanes. Norway, though a small country, has the highest number of EVs in the world. It has fast lanes, especially for the EVs, parking space is free and they do not have to pay for charging in public places, they can plug in freely. Similar systems have to be developed here too. Also, we have to see if the customer is prepared to take this technology. There should be value for money. In India, there is no battery technology; there should be local production of batteries. If all these are to be imported, car prices will go up”.

“Last year in the industry we saw 2352 EVs; the total industry is only 3.2 million, it is pretty small; it needs to develop. So, we are waiting; we have the technology ready, and we have MQB, Volkswagen’s global platform, for only the electrified cars. In 2020, we are going to launch the first car of our MOB platform in Europe. We are already selling electrified cars. In Europe, we have the Golf EE, E-Up, and also a lot of plug-in hybrids,” he said.

“The brand Volkswagen is selling around 6 million cars a year and we are selling 45,000 cars here. Our plan is to have a market share of three percent in the next five years. Our strategy is to regionalise because we understand each region is different here. We recently did a road show of Ameo where we went to the Tier 2 and Tier 3 cities, and we had a motorsports car with us, so we had put the ignition on so that the customers can hear the noise and get excited! This year, so far, we saw a growth of 30 percent in the industry in passenger cars, so that is tremendous growth. We are now at four million and we are not very far away from reaching the 5-million mark and then India will be number three. India is growing at a tremendous rate,” Mr Knapp said.

 

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