VW cautious on India

06 November 2012

NEW DELHI: Volkswagen, the automaker, is planning to take a cautious approach in India over the next three years, reflecting its concerns regarding the economic and legislative climate in the country.

John Chacko, the German company's chief representative in India, suggested fluctuating trading conditions were one matter commanding attention, as reported by the Economic Times.

"The Indian market is very volatile," he said. "The past two years haven't been particularly resounding as far as the growth rate is concerned. That's why the group has grown with the market at about 10%. It's not stagnant, it's growing."

Despite this, the German firm saw sales decline by 20% to 30,476 cars in the first six months of the financial year, while its market share has fallen from 3.5% in early 2011 to 2.4% today.

A key shift supporting this trend is the slowdown in GDP growth being witnessed in the Asian nation, a figure currently standing at around 5%, with knock on implications for Volkswagen's strategic activities.

"Look at the growth rate of the Indian economy, It is not supposed to be like this," said Chacko. "It was supposed to be, and should be, 7–8%."

Additional obstacles include rising fuel prices and worries over diesel policies, alongside the demand for localisation in production to suit local needs.

Volkswagen is also attempting to reach agreement with the regional government of Maharashtra about VAT refunds, indicative of a wider issue. "The policy framework here is not stable. Which company will like to invest?" Chacko said.

When combined, such issues mean it is hard to "pour more and more money" into the country, he added. "It has become more and more difficult as far as the business case is concerned."

Volkswagen sells seven models under its own name in India, as well as five from its Skoda brand and a range of higher-end options made by Audi. These existing operations will be a priority in the near term.

"Down the line, looking towards 2015, that's the right point of time to make decisions," said Chacko. "We will expand, but [for] new models like Up or any big investment, those will be decisions that I don't think will be taken between now and 2015.

"We are starting step by step with our vision and it will be with engine assembly, followed by localisation of other parts."

Data sourced from Economic Times, Times of India, Business Today, NDTV; additional content by Warc staff