German automobile major Volkswagen has said it is difficult for the company to roll out more entry-level cars in India due to pricing challenges. It will, therefore, remain focused on the premium segment and aspire to have a three per cent share of the Indian market by 2020, compared with 1.5 per cent at present.
The company has the Polo hatchback, priced at Rs 5.47 lakh onwards, as its entry-level vehicle in the country. “At the moment, it is very difficult to create a positive business case there (small entry car segment) without hampering the brand positioning. The entry segment, even though being large enough in volume, is very difficult to compete,” Steffen Knapp, director, Volkswagen Passenger Cars India told Business Standard. Market leaders like Maruti Suzuki and Hyundai command market share primarily on the back of the entry segment.
Citing the priorities in India, Knapp, who assumed his India role three months ago, said the company’s key focus will remain on Polo and entry sedans like the Ameo and Vento. He said the company is banking on the middle-class premium car buyers who do not consider entry-level cars. “The Ameo has delivered. Yes, we have room for improvement. There is a lot of room in that mid-size sedan segment”. The company has also decided not to go for the fleet/taxi segment and said it is not profitable. It is also not good for our premium image. Sometimes you need to take these tough decisions, he added.
Acknowledging the company’s limited market share in India, 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 we are targeting a customer segment, which is growing and wants premium cars. We want to make safe convenient mobility and not just a vehicle to go from A to B”.
In 2015 Volkswagen faced a global recall due to emission related problems in cars, had seen volumes dip almost nine per cent in the domestic market during FY16 to 41,096 cars. However, in FY17 it managed to grow 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, however, its growth is down to four per cent against an industry growth of nine per cent. The company has sold 24,289 vehicles and exported a much higher volume of 50,410 units under Volkswagen brand.
The export growth is also higher at 17 per cent. Knapp, however, said the idea to come to India is not to do exports. “Our idea is to be domestic. That’s clearly the objective. However, if there is an opportunity of sending cars to Mexico we would be stupid not to take it. It is a good business case. We have invested billions of Euros here. It is utilising our capacity”.
Knapp said the decade-old India operations is in a building phase here and wants to put the stake in the ground and to develop. “That is a challenge and it requires lot of resources. And lot of courage to say no I am not going to make this (car). But there is huge potential. We don’t have a lot of markets in the world that provide an opportunity to sell three million cars annually”. Volkswagen aims to sell 100,000-120,000 cars in India by 2020 when the domestic market size could be about four million units. That could take the company to a three per cent share.
On electric vehicles, Knapp said the manufacturer is ready. “We produce three electric cars globally now and this will expand to 25 by 2020/21. There is a lot of them coming. The company is prepared. Question is the infrastructure (in India) to support this and customer’s willingness to pay. These are the discussions we are having internally. We need to see how the environment in India develops”.