Volkswagen hasn't really been able to stir things up in the Indian market as well as they'd have ideally liked. VW's product shell carries individual product names like the Polo, Vento, Jetta and Passat spread across the (relatively) mass segments, while the German company will also sell you the Phaeton or the Touareg if you were mad (that's debatable!) enough to show interest in one of those.
Clearly, the Polo and Vento are positioned in the real number-crunching segments and the Jetta and Passat play in the premium sedan category. I am going to concentrate on the hatchback here - Polo. Volkswagen shifted more than 35,000 units of the Polo last year (Jan-Dec 2013). Considering that the small car segment is dominated by Maruti Suzuki and Hyundai to a great extent, this isn't a miserable performance by VW, but it's not great either - especially considering that the Polo and Vento (22,290 units in 2013) make for over 90% of VW's business in India.
With the Indian market maturing and the consumers in even the hatchback segment becoming more-and-more aware, I believe there's scope for brands other than Maruti and Hyundai, too, to gain a reasonable foothold and do good business. Look at what Ford did with the Figo! It clearly shows that a decent enough product at the right price-point will definitely find takers - brand history notwithstanding that much.
Volkswagen surely realizes that, and there's been serious discussion in Germany over the future of the brand in two of the most crucial and biggest markets - China and India. According to a report by German business journal, Manager Magazin, VW's management is believed to have signed-off on a budget car for emerging markets after investing a long time and a hard-fought battle in order to meet the cost targets for the product. The VW board and other senior members are expected to approve the car soon and the project may get rolling by mid this year.
Volkswagen had set a market price bracket of 6,000 to 8,000 euros for this new small car. That, in Indian currency stands between the exact cost range of Rs. 4.99 lakhs to 6.65 lakhs but for the sake of convenience, let's peg it between Rs. 5-7 lakhs. Currently, the plan is to manufacture this car in China, but from an Indian perspective, consider this - the Polo itself sells in the 5.5 to 10 lakh bracket, roughly, so, for this new, smaller hatchback to capture the attention of the price-conscious Indian buyer, it'll have to be cheaper still. That would mean local production (obviously) and higher levels of localization (obviously, again). This new small car, I reckon, would get slotted against everything from the Hyundai i10 to Maruti Swift - that'll be brilliant for VW! Just so that you get a sense of importance of these segments, you should know that Maruti sold over 1.8 lakh Swift hatchbacks while Hyundai shifted in excess of 91,000 i20s from its factory in the 2013 fiscal. The i10's FY13 sales figure stood at 92,897 while WagonR did 1,35,694 units. See the scope of the market?
Today, when Global NCAP tests of several Indian cars have gained global spotlight because of the depressing results for the cars tested, it is imperative that VW brings out a quality car that'll meet and/or surpass the toughest safety tests. That perhaps gives an indication of why the company invested so much time in getting at the right cost point - they'd have, I'm hoping, not compromised on quality and build integrity just to save on costs, and would've instead optimsed their operations in order to meet the strict cost ceiling.
This new product will be crucial for VW's much-publicised aim of becoming the biggest carmaker in the world by 2018. Volkswagen may do a Nissan-Renault - sell this small car under a completely new brand, which, if formed, will be the 13th standalone company under the Volkswagen umbrella. The planned product is said to go on sale by late 2016 or early 2017 in China, and if it is successful, the company will then bring it to other Asian markets, India being the most relevant, and vital. Volkswagen's Indian plant in Chakan, Maharashtra, has an installed capacity of producing 1,10,000 units annually, consequently scaling up the operations to manufacture the new small car under a new brand shouldn't be a difficult thing to do as the current annual sales only stand at about half that.
The compact-SUV segment has been doing rather well and manufactures like Renault, Nissan and Ford have benefitted greatly because of their respective products in that segment. Volkswagen's Taigun concept was also well received at the 2014 Indian Auto Expo and may serve well in the compact-SUV space - a category in the automotive spectrum that OEMs like even Maruti, Hyundai, Mahindra, and Honda re desperately trying to enter at the earliest.
Volkswagen, so far, has essentially not been able to get the pulse of the Indian market as well as Hyundai or Honda have managed to, but with invigorated efforts, streamlined operations, introduction of a sub-brand and newer products like the planned small car and the compact-SUV, it may just make a serious comeback!
