Europe's biggest car maker, Volkswagen, is a relatively new entrant in India but that has not curbed its ambition. It aims to garner 10 per cent share of the market in the next few years. That will be a long, rough ride since the three biggest car companies in India — Maruti, Hyundai and Tata Motors — lord it over 90 per cent of the 1.2 million market leaving just crumbs for the other dozen.
VW sold 10,400 cars in the first half of this calendar year and expects to close the year with 20,000. It has invested Rs 3,500 crore in India so far — that is the most by a German company in the country — which includes product-specific investments, and the capital expenditure on setting up a plant in Chakan, near Pune, and a dealer network.
Jochem Heizmann, a member of VW’s management board, was in Pune recently to take stock of the progress in India when Leslie D’Monte caught up with him. Edited excerpts:
Are you late in joining the battle in India?
We do not think so. We have been in India since 2001 with our Skoda (VW’s Czech subsidiary) cars, and our current sales figures imply 69 per cent growth in volume sales in India, which is a very important market for us. Now, we believe, is the right time to expand.
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This is why we are working slowly but surely at this (Chakan) plant. Look around, and you will see that there are around 3,000 construction workers toiling to make this plant operational by 2009. It has a capacity of up to 110,000 vehicles a year.
All planned activities for the production plant are running on schedule. The facility will produce cars such as the recently-launched luxury sedan Passat and yet to be launched models like mid-size Jetta, sports utility vehicle Touareg, small cars Polo and Golf and maybe UP at a later stage.
It will be an uphill task. What’s the plan?
We expect Polo and Skoda Fabia to drive volumes, while UP (when introduced) will be an answer to India’s need for an affordable car. However, we will not compete on price since we will not be able to fulfill our quality and safety demands if we go below a certain price.
We told ourselves that we first need excellent products.
We already have eight models in the country that include Passat, which was introduced last September, Jetta (just introduced), and Polo, which will be fully manufactured at our 230-hectare Chakan plant that is expected to start production by July 2009. The other plant is in Aurangabad and assembles the Skoda family of cars.
We will now have to convince people that cars are about driving and not just price. We believe that customers will look at the total cost of ownership when buying our cars. Our cars have low maintenance, good mileage and yet do not compromise on the driving experience. Besides, they have very good resale value.
How does manufacturing in India help?
Keeping in mind the nature of the Indian auto market, the vehicles from the plant will come in both diesel and petrol versions, and with a lot of local content. We plan to achieve localisation content of over 50 per cent initially, which could be scaled up to 70-80 per cent as we buy more parts from the local vendors.
The plant will also produce cars for the group’s Skoda and Audi brands. The Skoda plant in Aurangabad currently produces the Laura, Fabia, Octavia, Audi’s A6 as well as the Passat. We believe we are well-equipped to tackle the competition — both in the premium and affordable segments.
We will tackle the rise in steel prices and other input costs with flexible and lean manufacturing strategies. Moreover, the Skoda as well as the Volkswagen plants are technically designed such that they can manufacture cars of any of the group companies, including that of Audi.
Our Chakan plant has a lower degree of automation when compared to our plants in Europe. But it is deliberate. We want to generate employment besides building a plant that will help us be economical. We currently have 1,200 employees in India. With this Chakan plant, the number will be more than 3,000 by 2010-11.
India has a very skilled workforce. That is what explains the appointment of K K Swamy as the CEO of Volkswagen India. He reports to Joerg Mueller, president and managing director of the Volkswagen India operations.
But could the lack of automation at your Chakan plant, and high localisation, affect quality?
Not in the least. Quality is a given at the Volkswagen group. This is a full production plant with a press shop, body shop, paint shop and assembly lines. Quality is a given at Volkswagen. Hence, we are taking our time to ensure that it is adhered, too.
Chakan is on the outskirts of Pune. Will that pose logistics problems?
It’s here that our dealer network operations are crucial. We have six major dealers and plan to increase the number to over 100 by 2010. We have finalised plans to build a vendor park for our suppliers at the plant itself.
This will ensure quicker delivery of different auto parts to the plant and save transportation costs, besides helping us to be able to source the same quality of components procured and used in its vehicles sold in the overseas markets.
We are also talking to the government to lay a railway line to the Chakan-Taelgaon industrial areas. Our global practice is to move raw materials and finished products by rail rather than by road.
When do you plan to bring Beetle and UP to India?
We are investigating the market response, but cannot commit on anything.
What are your other plans?
Volkswagen India will introduce two commercial vehicles, a light commercial vehicle, and a 7-9 seater business bus, which is targeted at companies to ferry employees and keep them productive throughout the ride. The bus can be equipped with internet, television, telephone and fax.
Operating margins are taking a beating in the car segment, which is becoming increasingly competitive.
Several hundred senior managers at the group have set out and extensively developed central basic positions. Since 2004, all the brands and divisions involved have been working to put the primarily quality-related group strategy goals into practice.
Many measures were deployed in the period under review. The long-term development of the return on investment in the automotive division and thus the reported operating profit are areas that have been defined as part of our Strategy 2018.
There is rising consciousness in the world about the environment impact of cars.
To achieve success in the marketplace, companies need to show a firm, ongoing commitment to tackling the core challenges faced by modern society. Strategy 2018 represents Volkswagen’s adherence to a management philosophy based on sustainability and the pursuit of long-term goals.
In order to meet the goals we have set ourselves, we are conducting a far-reaching process of analysis as part of our future-research activities.
This includes an ongoing study of the risks associated with climate change, safety and health-related aspects of personal transportation and the effects of globalisation and demographic shifts — all with the focus on customer expectations and our product development options. However, we are aware that these social challenges also offer great opportunities.
Strategy 2018 has been drawn up on the back of a systematic analysis of social developments and plays a crucial role in safeguarding the group’s ability to meet the tests of the future.
As such it takes its lead firmly from our seven group values, which since 2003 have formed the basis for the work of our 325,000 employees around the world.
As part of Strategy 2018, we have identified the opportunities and risks presented by climate change and worked out projects and measures aimed at promoting environment protection.
On the one hand, these are linked directly to our products, the technologies imbedded in them and their content; on the other they focus squarely on the processes and structures within the company.