Third time’s a charm?

Skoda to help VW conquer India

main 27970294 AP DAPD – India street VW Skoda Volkswagen cars auto
So many potential customers. Source: AP / DAPD

Call it third time lucky. After two unsuccessful attempts to crack the promising Indian market, VW is trying again, this time with its Czech subsidiary Skoda, which is getting €1 billion ($1.16 billion) for an investment drive to double the group’s market share to 5 percent over the long term.

At present, VW Group’s market share in India is just over 2 percent. The biggest player is Maruti, a subsidiary of Japan’s Suzuki, with around 50 percent. VW’s eternal rival Toyota already has around 5 percent.

“For Skoda, ‘India 2.0’ is one of the strategic core issues for the coming years,” Skoda CEO Bernhard Maier told a news conference in New Delhi on Monday. “For the first time we’re taking overall group responsibility for a platform and at the same time for an entire region.”

Skoda will develop models for the Indian market and assemble them there too. Skoda’s job in part is to prepare the market for the core VW brand, which will also produce cars locally. The group’s Indian operation may eventually serve as a hub for exports to southeast Asia, the Middle East and Africa.

Last year a total of 3.2 million cars were sold in India, about as many as in Germany. India lags behind other Asian countries in terms of wealth and economic growth, and the market is still dominated by budget cars priced at around $5,000. But that may change in the coming years. As the country’s prosperity grows, so will the market for more technologically advanced, expensive cars. That’s where VW sees its chance.

03 p15 Skoda – India-01

VW’s previous attempts to enter the Indian market failed in part because its cars were too sophisticated and expensive. The German engineers didn’t want to abandon their high technical standards. The first time, almost a decade ago, VW cooperated with Suzuki. Then last year it struck a deal with India’s Tata Motors. But the plans foundered before any cars had even been developed and manufactured for the market. As a result, VW is lagging important rivals in what automakers expect to become the world’s third-largest auto market behind the US and China.

“With its low level of motorization and its large population India offers very good opportunities in the long term,” said auto analyst Arndt Ellinghorst of Evercore ISI.

Skoda and VW plan to launch three new models each in India in the coming years. They’re likely to be priced at up to $10,000. The VW brand aims to roll out new SUVs, which are increasingly popular in India, from 2020. They will be developed and built locally to benefit from low wage levels.

VW has several relatively small plants in India and plans to expand their capacity to 200,000 to 300,000 cars per year. Last year the VW Group with its various brands sold around 74,000 cars in India, a fraction of the close to 11 million vehicles it sold worldwide.

If its latest venture proves a success and exports from the Indian plants increase, Skoda and VW could reach combined a combined output of 400,000 to 500,000 cars there per year.

Stefan Menzel is one of Handelsblatt’s automotive reporters. To contact the author: menzel@handelsblatt.com.

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