New subcompact sedan expected to expand VW Group’s market share in India

Article by Andrew Christian, on June 25, 2015

Next year, the Volkswagen Group will launch a subcompact sedan in India. The automaker is confident that launching this sedan, with its multiple attractive features, will improve on its 2% share in the market and boost expansion in the fast-growing market. This new model is categorized as part of a small but increasingly expanding segment for cars shorter than four meters.

This means that it qualifies for tax breaks. It has features like dual airbags and automatic gear shift that are typically offered only on high-models. It’s actually a bit late in the game for this car to enter this segment, which is a favourite among the middle class who want affordable vehicles that have high specifications.

It enters into a segment already dominated by the sub-4 meter sedans of Hyundai, Honda, and Maruti Suzuki. In a Reuters interview, Michael Mayer, VW's director of passenger cars in India, said that the company sees “a better future” with this car. He also said that VW decided to bring this car to the market as soon as possible.

VW doesn’t have a very solid foothold in India because of the absence of small cars that are competitively priced. In the business year that ended on March 31, VW sales decreased by 14% to around 45,000 units. In comparison, the auto market in India increased by 5%, according to the Society of Indian Automobile Manufacturers.

The automaker is hopeful that this new model, which is produced locally and was designed for the Indian market, will reverse the downward trend. Mayer said that to limit costs, the automaker intends to build the car on the production line that rolls out the Polo hatchback and Vento sedan. He said that the company has to come up with “smart solutions.”

Mayer added that as soon as the new sedan is launched, the company will have to consider a plan to expand its capacity of 130,000 vehicles annually. This hints that VW may be planning to export to other emerging markets. A company spokesman said that VW hopes to raise its capacity to 200,000 units by 2018.

During the year that ended March in India, the automaker produced around 107,000 units. Almost 2/3 of this number was exported. Market researcher IHS said that about 1/6 of the 2.6 million total cars sold in India in 2014 were of subcompact sedans and subcompact SUVs.

The total sales in the country are expected to double to almost 1 million by 2020. Buying smaller cars is encouraged in India to restrict traffic congestion. Those that belong in the sub-4 meter segment have a lower excise duty rate of 12% while the bigger cars’ rate is at 30%.

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