 "Volkswagen will invest on capacity addition: Michael Mayer")
Volkswagen has surprised the market by posting a 36 per cent growth in domestic sales in the May period. It is betting on a sustained growth and has lined up launches. Michael Mayer, director, Volkswagen Passenger Cars India, tells Ajay Modi that the current growth rate is a trigger to look at capacity additions. Excerpts:
The company is growing at a much higher pace than the rest of the industry. What is working for you?
There is a growing trust in our brand and dealer network. Our growth also comes from a lower base. We started production in 2010. We are a young brand if you compare us to Hyundai, Honda or Toyota. But turning that around in a short span of time is a significant achievement. Models like the New Cross Polo and Jetta have helped us grow.
Will the growth drive a capacity addition?
We will need to invest on capacity. We currently have a capacity to produce 135,000 vehicles at the Chakan plant. While we sell in the domestic market, there is a substantial export as well. Both are growing and our capacity utilisation is very close to the capacity. I cannot share the timeline for expansion now.
Tell us about the learning you have from the Indian market.
India is an extremely price-competitive market. We have not seen any price increase for two to three years. The market has not allowed. Buyer has been hesitant. We have been working on costs and efficiency to be profitable. You have to cope up with that and sustain the business. India is mainly driven by newness.
ALSO READ: Volkswagen India to launch 5 products in next two years
You need to demonstrate that your product is undergoing continuous renewal. If you don’t do that, you cannot sustain a product for four-five years. In India, a car is not something to get somewhere; it’s something to show you have gotten somewhere. It is a statement. That gives us the confidence of growth because a statement requires a good brand.
The company is growing at a much higher pace than the rest of the industry. What is working for you?
There is a growing trust in our brand and dealer network. Our growth also comes from a lower base. We started production in 2010. We are a young brand if you compare us to Hyundai, Honda or Toyota. But turning that around in a short span of time is a significant achievement. Models like the New Cross Polo and Jetta have helped us grow.
Will the growth drive a capacity addition?
We will need to invest on capacity. We currently have a capacity to produce 135,000 vehicles at the Chakan plant. While we sell in the domestic market, there is a substantial export as well. Both are growing and our capacity utilisation is very close to the capacity. I cannot share the timeline for expansion now.
Tell us about the learning you have from the Indian market.
India is an extremely price-competitive market. We have not seen any price increase for two to three years. The market has not allowed. Buyer has been hesitant. We have been working on costs and efficiency to be profitable. You have to cope up with that and sustain the business. India is mainly driven by newness.
ALSO READ: Volkswagen India to launch 5 products in next two years
You need to demonstrate that your product is undergoing continuous renewal. If you don’t do that, you cannot sustain a product for four-five years. In India, a car is not something to get somewhere; it’s something to show you have gotten somewhere. It is a statement. That gives us the confidence of growth because a statement requires a good brand.
What will be your priority areas in the near future?
We would like to have the best sales and service network and an accessible premium brand image. I would like to be considered a local player. It will take time. We want to produce cars with a sufficient level of localisation. It is a high priority for us.
ALSO READ: Volkswagen readies comeback plan
Do you see a decline in sale of diesel vehicles as price gap between petrol and diesel is narrowing?
You have to look at different segments. In Jetta, 85 per cent sales is diesel and in Vento, up to 70 per cent is diesel. In these segments, diesel plays a role because the running cost depends on distance one drives. But we see some pick up for petrol cars, especially in smaller cars. This is an effect of the fuel price policy of the government. This may be the time to invest in petrol engine capacities.
Indian automobile industry will see implementation of a series of norms in the next few years. How are you preparing?
We will be able to adjust to the emission norms comfortably. As far as crash test norms are concerned, our cars are safe. If somebody does not find a stupid norm to distort the market, we are well prepared for the change.
We would like to have the best sales and service network and an accessible premium brand image. I would like to be considered a local player. It will take time. We want to produce cars with a sufficient level of localisation. It is a high priority for us.
ALSO READ: Volkswagen readies comeback plan
Do you see a decline in sale of diesel vehicles as price gap between petrol and diesel is narrowing?
You have to look at different segments. In Jetta, 85 per cent sales is diesel and in Vento, up to 70 per cent is diesel. In these segments, diesel plays a role because the running cost depends on distance one drives. But we see some pick up for petrol cars, especially in smaller cars. This is an effect of the fuel price policy of the government. This may be the time to invest in petrol engine capacities.
Indian automobile industry will see implementation of a series of norms in the next few years. How are you preparing?
We will be able to adjust to the emission norms comfortably. As far as crash test norms are concerned, our cars are safe. If somebody does not find a stupid norm to distort the market, we are well prepared for the change.