DIFFICULT TO MAKE ENTRY-LEVEL CARS: VOLKSWAGEN INDIA

German automobile major Volkswagen said it was getting difficult for the company to make entry-level cars in India due to pricing challenges.

The company said it would focus on the premium segment, and aspire to reach a three per centmarket share, from the current 1.5 per cent, in the country by 2020. Volkswagen has the Polo hatchback, priced at ~5.47 lakh onwards, as its entry-level vehicle.

“At the moment it is very difficult to create a positive business case (in small entry-level segment), without hampering the brand positioning. The entry segment, though being large enough in volume, is very difficult to compete in,” Steffen Knapp, director, Volkswagen Passenger Cars India told Business Standard.

Market leaders such as Maruti Suzuki and Hyundai command market share primarily on the back of the entry-level segment.

Knapp, who assumed his India role three months ago, said the company’s key focus would remain on the Polo and entry-level sedans such as the Ameo and Vento. He said the company was banking on the middle-class premium car buyers. “The Ameo has delivered. Yes, we have room for improvement,” Knapp said. The company has also decided to not go for the fleet/taxi segment and said it was not profitable. “It is also not good for our premium image.”

Acknowledging the firm’s small market share, Knapp said, “We are not in the same market position here like in other markets. In Germany, we have a 25 per cent share. We are a smaller brand here and are targeting a customer segment that is growing and wants premium cars. We want to make safe, convenient mobility and not just a vehicle to go from A to B.”

Volkswagen, which in 2015 faced a global recall due to emission-related issues, had seen volumes dip almost nine per cent in India during FY16 to 41,096 units. However, in FY17, it managed to increase sales by 22 per cent to about 50,000 units with a market share of 1.64 per cent. In the first half of FY18, its growth has softened to four per cent, against the industry growth of nine per cent. It has sold 24,289 vehicles and exported a much higher volume of 50,410 units under the brand. The export growth is also higher at 17 per cent.

However, Knapp said the idea behind India business was not to do exports. “Our idea is to be domestic. However, if there is an opportunity of sending cars to Mexico, we would be stupid to not take it. It is a good business case. It is utilising our capacity.”

Knapp said the decade-old India operations is in a building phase and wants to put the stake in the ground to develop. “That is a challenge and it requires lot of resources. But there is huge potential. We don’t have a lot of markets in the world that provide opportunity to sell three million cars annually”. The firm aims to sell 100,000-120,000 cars in India by 2020 when the domestic market size could be about four million units.