Volkswagen gears up to fix India strategy post low sales

Volkswagen, Europe's top carmaker, is fixing its India strategy to turn around operations after posting lower sales in each of the past three years.

The plans include introduction of new models, giving more incentives to dealers and improving after-sales services to address some of the main complaints it has been facing. The automaker is also looking at reducing cost, such as through using more locally-sourced components and tightening sales and marketing operations, to make its cars more affordable in India's price-sensitive market.

To utilise capacity at the Pune plant even as it works on the turnaround, Volkswagen (VW) has increased exports from India.

According to people with knowledge of the matter, the initial part of Volkswagen's mid-term strategy includes getting the fundamentals of sales and service in place and eradicating the perception of it being a high-cost brand.

Making dealers happy is core of this strategy. With sales volume taking a knock, a number of VW dealers were bleeding and in order to sustain, some of them resorted to overcharging on spares and services, raising complaints about its after-sales operations and giving it the tag of an expensive-to-maintain car.

Volkswagen now offers as much as 10-12% of a car's value as commission and incentives to dealers, compared with 5-6% gross margin previously. The norm in the mass market is 3-5%.

The incentives are linked to a customer satisfaction index, and a company executive said almost 90% of its dealers have been able to taken advantage of the higher payouts.

"We have worked intensively with our dealer network and have rejuvenated them (dealers)," Michael Mayer, the newly appointed director for Volkswagen brand in India, told ET. "You cannot do a car business without having profitable dealers who are satisfied and performing. We have worked on it and there is still some distance to go."

VW will shortly put up prices of all spare parts on its website and the copy of all service bills will flow into the company's system to check overcharging by dealers. It is currently in the process of identifying non-performing dealers and is prepared to expel those who are defaulting on the new guidelines, said an executive, who didn't want to be named.

Mayer said his mission in India is twofold -shaping the future plans, and creating a top sales and service organisation that is strongly tied to quality.

He said the company is looking at improving the model range. He sees 2015 as partially a year of consolidation and partially a growth year for VW in India.

Analysts blame VW's thin and dated range of products in India for its weak performance. While VW has been posting falling sales, rival automakers such as Maruti SuzukiBSE -0.15 %, Hyundai Motor and Honda Motor reported impressive sales performance, helped by strong demand for new models.

VW is preparing to correct the course. It plans to launch the new Beetle, and Passat premium sedan, the Tiguan sportutility vehicle as well as a compact sedan to capture volume.

The action starts with the Beetle in the second half of 2015. Then on, it is expected to launch one product every 4-6 months for two years. People close to the company said VW India is also persuading the headquarters to bring in its global advanced vehicle architecture MQB into India by 2018.

"The MQB platform Polo is slated for launch in 2016 and the same vehicle was earlier planned to be introduced in India by 2018, but looking at the environment, the HQ is keen to bring it in India by 2020, however the Indian arm is pushing the parent to bring the MQB into India by 2018," said one of the person in the know of development at VW.

Mayer said the company will show growth this year.

"From now on, we will grow consecutively each year," he said, but cautioned that "the degree of growth will depend on certain things, which are not under our control".

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