• Team Auto Punditz

Future of Brand VW in India – Report

Volkswagen’s decade in India. Beyond?

From mid of 2017, VW Cars India is frequently in the news with stories of exits from key leadership positions, new appointments and of course the future plan. Why not, after all VW is a decade old now in India. India journey started with top down approach with premium cars landed first to build the brand’s foundation and later followed by volume products. Since they were quite late to the party, they splurge big on brand building (innovative ad campaign) and dealer management. Some dealers say that VW inventory credit period was longer and VW used to absorb higher % share in the discounts offered to customer, quite different from the then norms.

In 2010, they had ambitious plan to have 20% market share by 2018, later it was toned down to 8% in 2014. 10 years on, almost all premium products have gone off the shelf and VW is left with aging and struggling product portfolio and market share of mere 1.5% in India, unlike the leadership position VW hold in some of the biggest car market around the world, like – Germany (#1-21%), China (#1-17%), UK (#2-8%) and Brazil (#3-12%).

New plan, as reported, is having modest target to reach back to the 2011 level of 3% market share in next 5 years, and not eschewing leadership position. Assuming overall industry grows at healthy annual rate of 10% from here onwards, VW need to revive the existing products and fill the portfolio gap quickly to reach 13k monthly mark.

What makes the modest target seems more tough is the fact that the highest monthly sales VW could have ever achieved were in 2011 and 2012 when all the products were in glory days.

Of course history is not the future, market is growing and VW too will strive to grow, but 34% CAGR, from here onwards is challenging, especially when they are still contemplating either to have new MQB platform or older modified PQ 25 platform to underpin the future product pipeline. MQB-CKD (Completely Knocked Down) product assembly is not much cost effective in India and thus cut them short on pricing products competitively. Also lower level of localization means higher price of after sales spares which will effectively inflate customer’s cost of ownership, denting the long term value proposition.

Meanwhile, in order to promote Make in India initiative, Government of India in 2018-19 budget has raised custom duty (tariff barrier) on imported component, that essentially translate into higher price of vehicles which have higher imported content or CKD products.

Current Product Portfolio and Performance

Since 2010 VW took the baton from the Skoda to lead the volume segment and had a very good start and market share. It even developed India focused product like 4m sedan, though it is not working well. VW is slow to react when it comes to management of product life cycle (mid-life refresh and upgrades) and delay in bringing new generation Polo and Vento has resulted in loss of market share. Below table shows how VW is doing not so good despite having presence in fast growing segments.

Pricing of CKD products assembled in India, like Tiguan, is not going to help it to gain much of the volume. From current 100 monthly average figures it can go up to 200 monthly mark. Moreover conservative styling will make it to be called niche.  Being niche in under ₹ 35 Lakh segment makes existence quite vulnerable, as what we have seen in the case of Skoda Yeti. Jetta and Passat segment have become niche now, with SUV onslaught, in future segment could taper down further.

In short, future growth of VW is hinged upon the success of next generation launch of Ameo, Polo and Vento, and introduction of new products in other segments.

2018 and Beyond



Smallest VW hatchback on sale around the world is ‘up!’. Going by the dimension of the car on sale in the UK, it is similar to the size of Wagon R, slightly wider though. Feasibility study need to be undertaken if it can make a mark in slowly de-growing segment, as there is high chance of VW not being able to get the pricing right owing to their Indian cost structure.


If ever VW plans to develop new global hatchback for small-car market, they need to keep Maruti Swift in mind and try to accommodate Indian market need as well.


Polo is smart looking car, but its aging, and perhaps not in a good way. Brazil already got the new Polo, but India launch is nowhere in sight. On top of that VW has downsized naturally aspirated petrol 1.2L engine, may be in order to gain higher mileage or meet the tightening emission regulation. Well sooner or later buyers will realize the downside of low torque figure and its effect on city drivability and highway overtaking. That may not go well, when competitors are easily able to deliver better mileage, power and torque from larger 1.2L engine. Newer generation Polo with 1L naturally aspirated petrol engine might struggle to make headway in a segment which will soon get crowded with upcoming and highly promising products from Tata and Kia.


Large sedans are ceding ground to SUV. Only hot segment is sub 4m, which is growing rapidly. But segment is dominated by Maruti Dzire which is becoming stronger with every outgoing generation. But Maruti doesn’t seem to be complacent; rather they are bringing newer generation much faster than competition and always raising the bar.

Sub 4m

Ameo looks awkward from side profile. Numbers are slowly tapering, hopefully new and better Ameo could be on offer in next 3-4 years. Challenging Dzire with puny 1L engine will make task tougher.


Vento is competitive but is missing big time on timely upgrades. In fact it is doing much better with Skoda’s logo, as Rapid. Newer generation will help to gain market share, still Honda City may continue to have better pricing power in the segment and Ciaz the most value for money. Upcoming Toyota Yaris will make life tougher for all players as segment is not expanding due to rise in similarly priced compact SUV segment.


Jetta always has to be second fiddle around cousin Octavia. In has seen two discontinued generation and little success when it comes to numbers.  VW sedans are smart looking, like man in tuxedo, on downside all products look quite similar and sometimes difficult to differentiate. But Skoda’s crystalline design is very striking and exude more premiumness thus has an upper edge when it comes to premium quotient.


Passat simply enhances the Skoda Superb value for money appeal. In company of large SUV products, it is just a quest for survival.


In recently ended car themed entertainment show – The Grand Tour (Season-2, Episode-10) on Amazon Prime, host Jeremy Clarkson has made a very good analogy about SUV “If you are in a hatchback or a saloon, you see an SUV much larger coming towards you. You think, if we have an accident, I am going to come of worse. So I better have one too! They are like nuclear weapon, once one person got one, everyone wants to have one”. Just like safety arms race. Additionally, people have innate desire to own a car which just has to be bigger than their neighbor’s. That is why, size is definitive parameter for product segmentation followed closely by price range.

Apart from functionality, there is uncanny obsession for owning something which offers commanding position from inside the vehicle and posturing intimidating image outside. That brings the willingness to pay higher price. For example consider Maruti Baleno (Hatchback) and Brezza (C-SUV), both have similar footprint, however, Baleno offers more in-cabin and boot space. Still buyers are willing to dish out additional Lakh ₹, just to satisfy their emotional need with an (pseudo) SUV. Because on functional side, buyers get mere 15 extra BHP, for a Lakh ₹!

Under 4m

Stop gap 4m SUV recipe is very simple, take a 4m hatchback, increase ground clearance and tweak the silhouette to look like an SUV, just like Honda WRV. Or take a longer route (time & investment) to completely change the body shell along with the mechanicals. With the current GST structure, and growing obsession for compact SUV, 4m length vehicles are here to stay. So best way is to have a completely new product just like Ameo. Leveraging modified version of Skoda’a Vision X concept build on MQB A0 platform may be more cost effective solution in long term for India.


As reported, VW is planning to introduce Hyundai Creta rival. From VW’s global portfolio, T Roc seems to fit the bill in terms of size. However, in the UK it is priced very closer to Hyundai Tucson, which will make the product unviable in India. So underpinning has to be different, though retaining the outer shell. VW need to be very cautious with the pricing, the moment it crosses ₹ 15 Lakhs mark, it will get into the territory of Jeep Compass and price inelasticity will hammer down the volume. Reason is VW overall doesn’t have strong pricing power in India as enjoyed by Honda, Toyota and Skoda in some of the premium segment. VW need to acknowledge the ground reality of India, in regard to its brand image and pricing power. Brand image of Skoda was created by Octavia and Superb, which are well regarded as premium vehicle in India. But VW brand image was created by more common in sight, Polo and Vento, thus in India, Skoda has an edge when it comes to premium image and pricing power. Brand image is something which is engraved in psyche of onlookers and customer alike, and enhancing it after certain point in time, on company’s own will, is more challenging, but going downhill is pretty easy.


Pricing of Tiguan has put it on the spot. Its conservative styling and size will appeal to the sensible buyers, implying those who don’t want to flaunt their SUV. That pushes it into niche segment. Size wise it is in territory of Compass and Tucson. See how aggressively priced Compass is doing well.

But pricing lands it into big boy’s territory which are far more appealing, though may not be sensible as third row of seats is seldom used. Lack of sheer size and pricing power is reflecting in the numbers which is quite low in comparison. Look at Skoda Kodiaq which easily got away with such steep pricing. That’s what brand image is all about.

Availability of CKD import may improve numbers but not too much, similar to overpriced Hyundai Tucson. Just like Americans, Indians too love their SUV to be big, if not, then at least have strong road presence. For example, in ₹ 25 Lakhs+ price range, Toyota Fortuner really commands Lion’s share across Sedan-SUV segment.

4.5m-4.7m & 4.7m-5m

Only product in VW’s global portfolio that fits into the segment is Touareg (4.8m). VW tried its luck twice with CBU (Completely Built Up) import Touareg but with no success to show. Some international reviews say that it is as good as an Audi SUV. But question is, wouldn’t potential buyer opt for Audi Q7 for few Lakhs ₹ more, instead of a vehicle which comes with VW logo on front radiator grill, which is same as on ₹ 6 Lakhs Polo. Perhaps Brand Conscious buyers would prefer Audi.

Having said that, Toyota is still able to sell twice as expensive Landcruiser 200 with quite an ease. Landcruiser brand is built on strong past credential and heritage which VW SUV doesn’t have. That’s the game of brand in India.

Safety as an USP (Unique Selling Proposition)

In one of the test drive session, sales representative from VW dealer claimed, that when it comes to safety, VW is Volvo of mass market segment, implying highest safety standard. However, competitors can easily match the standard. For example in the year 2014 & 2015, Global NCAP has had crash tested Indian made cars and awarded 4 star safety rating (out of highest possible-5) to both VW Polo and Toyota Etios for adult occupant protection(frontal passenger). So safety as an USP will not hold for long. In fact, Ford is providing 6 airbags on some of its vehicle priced under ₹ 10 Lakhs.

On a side note, Volvo is well known for its safety obsession, remember when they invented three-point seat belt and let it go off-patent, so that vehicle manufacturers across the globe could adopt it and make vehicle occupants across the globe to travel safely. That is incredible way of saying that we care for your life.

Sales & After Sales

Right product at right price is three quarter way through the game, rest all depends on sales and after sales experience. Look across several consumer and automobile forums and one can observe that there are issues with availability of spares, pricing, and quality of service rendered at service station. Keeping channel partner happy is good thing but aim should always be to keep customer happy, the real provider of green bill. Word of mouth has pretty strong influence in buying decision process, so even one unhappy customer, will lead to future loss of other potential customer(s).

Would VW exit India just like GM?

A year before winding up sales operation in India, GM too has shown commitment of Billion $. But then GM has exited from Europe too. After 2007 American financial crisis, GM has lost the #1 global ranking and settled down for #5 ranking by 2016. Some automakers say that India is a tough market, well, every country-market is unique in itself, a tough nut to crack and India is no different. For example Suzuki’s Indian Subsidiary Maruti is super successful, however, their American subsidiary had gone bankrupt in 2012 and eventually they pulled out from the US market. So it all boils down to business jargons like – priority, focus, ambition, capability, resource deployment, competency development etc..

VW India case is little different from GM. Two decades of unsuccessful operation has left GM with lot of accumulated losses on its books in India, for the period of 2014-2016, GM had a negative operating margin and cash flow but VW has had positive operating margin and cash flow over that period, even better than Honda and Toyota in some years. Moreover, for VW Group as a whole in India, has Audi as cash cow and Porsche, Lamborghini and Bentley are icing on cake, so literally VW Cars India has luxury to sustain in India. So they may leave, only, if they wish to. However, VW as a group need to be cautious while pushing Skoda to be volume generator in India because brand dilution is inevitable if Skoda goes whole hog to cater lower end of hatchback segment, in order to gain volume. It is surprising as to why Skoda is chosen at this point of time to gain volume, given the current positioning and reach (VW has almost twice as many touch points) of VW and Skoda in Indian market.

VW could wish to take a lead in electric mobility within the group and plan to bring products initially as halo one, more as a brand building exercise. May be later followed by mainstream products, as and when market matures and become ready to adapt to electric vehicle (perhaps after 5 years from now or even longer) in larger scheme of things.

Possible Future Product-Mix

(The article is written by Rohan Rishi. You can connect with him at

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