Volkswagen AG is planning to raise the amount of locally built parts in vehicles being sold in India in order to reduce while costs and increasing slumping sales in the country. While it has been in India for five years, VW has yet to make significant gains, only capturing 2.1 percent of a market dominated by cheap compacts.
Likewise, VW’s models are seen as relatively costly and the brand lacks a diverse mass-market product range. They are outsold and outpaced by compact cars from like Hyundai Motor Co. and Maruti Suzuki Ltd. as well as by mid-market offerings from Toyota Motor Corp.
VW’ slump in India has also been made worse by the country’s worst economic slowdown in the past 25 years, lower sales of passenger cars for the two straight years that ended on March 31.
To reduce costs, widen its appeal and boost its profits, VW is increasing the amount of products sourced locally. Michael Mayer, director, passenger cars at Volkswagen India Pvt Ltd., called the initiative as "Indianisation.”
He remarked that VW needs tailor its cars to the taste of the Indian customers. Mayer remarked that VW may not have had localization on the table it entered India in 2010, the approach has become a vital part of the carmaker’s growth strategy.
Currently, the local content level in cars being sold in India is around 65 percent to 70 percent, and VW plans to hike that to 90 percent building engines and gearboxes locally.
Mahesh Kodumudi, president and managing director of Volkswagen India, remarked that local production of the parts would be needed to have a "sustainable business model". VW posted a 24-percent drop in passenger car sales to 52,525 vehicles in India for the fiscal year ended on March 31, 2014. [source: Reuters]