Road Ahead For Volkswagen India


Thread Starter #1
Joined
Jan 31, 2012
Messages
1,080
Likes
194
Location
Delhi
Volkswagen may still struggle to compete with fierce price-warriors like Hyundai & Maruti Suzuki he rear-view mirror frames a blur. For Volkswagen India has floored the accelerator. In just four years its brand recognition has zoomed from 8% to 54%, sales have soared from 13,000-odd to 1.1 lakh cars and the market share needle has inched up from 0.91% to 4.9%.

Even when the roads were treacherous - in 2011-12 the automobile industry grew by 5% - Volkswagen was burning rubber: its unit sales grew at over 50%. And last month, its luxury brand, Audi, unseated Mercedes to become the second-largest luxury car seller in India.

Nobody's on Volkswagen's tail. Once fellow road warriors, Ford and GM have been left behind. But the road ahead is not empty. Maruti and Hyundai are speeding away, and suddenly it seems the superfast VW is still playing catch up. Or worse, even slowing down.

Month-on-month sales of its flagship brands (with few exceptions like Audi) seem to have lost their sizzle (see graph next page). But Maruti and Hyundai are kicking up a storm. Monthly sales of Maruti Swift have grown from 12,114 cars in March 2011 to 20,521 cars in March 2012.

Sales of Polo have hovered around 4,000 in those months. Similarly, its sedan sold around 4,000 in March 2011 and March 2012. But Hyundai's Verna is flying off the shelves - from 489 in March 2011 to 4,132 in March 2012.

A bad patch on the road, some would say. A proud John Chacko, chief representative, Volkswagen Group India, prefers to look at the bigger picture: "We changed the game." That's because in four years Volkswagen has become the sixth-biggest car company in India beating much older Ford and GM who have been here since the 1990s.


1.jpg

But that's not a place VW is content with. It is perhaps the most audacious, aggressive and ambitions car company in the world today.

With VW, Audi and Skoda and many other brands under its umbrella, it is many companies rolled in one. Selling 8 million cars in 2011 on a E159.3 billion revenue makes VW the second-largest car company (after GM) and more importantly, among the most profitable car companies in the world. By 2018, it hopes to snatch away the No. 1 title from GM. By 2015, it hopes to beat BMW to become No. 1 in luxury cars.


2.jpg

In this grand plan, India is the next battlefield. Already the No. 1 car company in China, VW wants 10% market share in India by 2018. This is why it can't afford to stumble now. This is why the weakening buzz about its cars maybe bigger trouble than just a rough patch.

So far, the group's sharp rise in India has been on the back of VW's global strength - big investments, great products and smart brand building for big-bang launches. That stage of market entry is over. Now VW must prove that it is agile and sensitive about handling Indian roads and its fussy Indian customers. Here, its report card is not encouraging.

"VW has done a tremendous job of launching the brand in India. Now the battle has to be won inside showrooms - with customers," says VG Ramakrishnan, vice-president (automotive & transportation) at consulting firm Frost & Sullivan. The critical last mile - of dealers, sales, customers and service - is a problem area. "This is the most difficult market we know of," says Chacko.

To understand what's going on, let's go straight to the battlefield - the showroom - where the brands are slugging it out.

Last Mile Problem

Something is refreshingly different about the VW's dealership in Noida. On a sunny April Sunday, parking is surprisingly easy with many vacant slots. There is an unusual orderliness inside the spacious, relatively plush showroom - a welcoming reception, comfortable lounge sofas, both planning and investments show.

Starting with the Beetle at the entrance, cars are well laid out for you to see and sit inside. The only exception is perhaps the three-four odd car buyers who have come in with children and add some chatter and disarray to the setting.

Barely half a kilometre away, the Hyundai showroom is a different world. Parking outside is chaotic with cars choc-a-bloc, many spilling over to the road. Inside, the showroom is big - but feels small. It looks chaotic and messy - display cars are cramped in, reception is tucked in a corner, tables and chairs are packed in to optimally utilise the space. But all this really does not matter.

The business looks good. Sales agents are busy. And the place is buzzing with customers. The two showrooms reflect the reality well. In 2011, VW sold 75,000-odd Polos and Ventos - its flagship cars in India. In contrast, Hyundai sold 1,20,000-odd i20s and Vernas - the comparable models that compete with the two VW cars.

Partly this has got to do with VW's lower dealer penetration (103 dealers) compared with Hyundai's (544 dealers). But there are other issues VW is grappling with - starting with price. VW cars carry a price premium. Take i20 and Polo. Their top end model (1200 cc, petrol, on-road Delhi price) costs Rs 6.89 lakh and Rs 7.2 lakh, respectively.


3.jpg

Article source: Economic Times
 
Thread Starter #2
Joined
Jan 31, 2012
Messages
1,080
Likes
194
Location
Delhi
Re: Road ahead for VW India

But for a lesser price, i20 comes as a more loaded car - with features like rear-parking sensor camera that Polo does not have. "VW has been a step ahead of its key rivals in China, Brazil and Russia. India has been the toughest frontier market because VW's higher cost structure has made it hard to compete in a price sensitive India," says Michael Dunne, an expert on the Chinese auto industry.

1.jpg

Customer? Don't Care

The indifferent attitude of its sales agents is not making it easy. At least five potential customers and four auto consultants we spoke to mention it as a problem area. Blank sales call to a VW dealer in Delhi confirmed it. Instead of luring the customer to come to the showroom to sample the car, the first thing we were asked was about our budget. The dealer's office wanted to email the price list. The message: Figure out the prices first. But that's VW's weak point.

Also, VW's globally successful cars that have outstanding quality and performance records are having a bumpy ride in India. Mohit Arora, executive director, JD Power (Asia-Pacific) agrees.

For example, in JD Power studies, a higher proportion of VW customers report problems related to clutch pedal effort compared to some of the models in the respective segments. Indian customers tend to use the clutch far more than their European counterparts and thus require a lower pedal effort.

"VW has significantly increased customer expectations [with its impressive brand launches.] Today many may think VW is in the same league as some of the luxury German brands. It needs to work proactively to manage their expectations both in terms of product and network performance," says Arora.

All this is showing up right at the HQ. "If an Indian customer complains, he complains like hell. They do it loud and use every possible medium to express themselves," says Lutz Kothe, head (marketing) VW Passenger Cars. Most complaints arriving in Germany come from India. They complain straight to the HQ, says Chacko.

Course Correction

Partly, it has got to do with VW's evolutionary journey in India. Present in India through Skoda since 2001, it went into an overdrive in 2008 and used all its financial muscle to launch its mother brand VW and luxury brand Audi.

2.jpg

Between 2007 and 2012, the number of dealers of the group went up from 83 to 218. It put up a state-of-the-art Rs 3,800-crore plant in Chakan in a record 17 months and launched a flurry of cars including Vento and Rapid and volume segment cars like Polo and Fabia.

"Looking for a quick scale-up, they wooed new dealers with financial support. For example, to help them set up the dealership, VW itself invested in their infrastructure (it could go up to Rs 1 crore) - something almost unheard of in the industry. That support was linked to dealer retention," says a senior executive at a rival firm. So if the dealer stayed on board beyond a specified period, the investment was theirs.

Also, its huge brand buzz created a brand pull for its flagship models like Polo and Vento which had three-four months' waiting lists in the beginning.

Then things began to turn. Last year, when stocks were not moving, VW, like most car manufacturers, pushed stocks with discounts. But with a difference.

For example Maruti offered discounts where the cost of discounts was shared between the company (70%) and the dealer (30%). "It ensured that dealers' stakes were tied in with us," says a senior Maruti executive, VW dealers were 100% reimbursed by the company. This brought some indiscipline in their system.

VW is now waking up to the challenges here. "I believe you should have a consolidation phase after a big bang expansion. And we are in that phase right now," says Chacko. To achieve growth it is not looking at a rapid scale-up of dealers any more. "Frankly, you cannot scale up dealers that quickly," Chacko says.

With the stage of market entry over, VW is now figuring out how to fine-tune its operations at different levels. For example, in offering discounts, the company is now asking for some contribution from the dealers, says a VW dealer in western India. Earlier, the company used to give 1% reimbursement on dealer's turnover as part of the corporate identity norm as incentive.

Now, to align it better with customer care, it has been merged with customer satisfaction index, says the dealer. "The biggest learning curve for us so far is that in India respect the demand of the Indian customer," says Kothe. And he assures the company is working hard to make it work.

Best of Talent in India

"VW has brought in best global talent to work in India. The key will be to quickly adapt to local conditions and look at rapid indigenisation of both products and talent," Arora says. VW has already begun to do that. For example, many trainers brought in from Germany at their Chakan plant have been replaced by their Indian counterparts.

Article source: Economic Times
 
Thread Starter #3
Joined
Jan 31, 2012
Messages
1,080
Likes
194
Location
Delhi
Re: Road ahead for VW India

Will this consolidation phase mean a slowdown and a revision in the 10% market share target by 2018? "We aren't saying that at the moment," says Chacko. Instead, he is busy scripting a strategy that will help it get there.

Working on the Price

There is a reason why VW cars have a price premium. When Sunandan Kapur of Krishna Group, a vendor to the likes of Nissan, GM and Fiat, signed up with VW, he had it tough. They insisted on things like robotic welding and radioscopy of welding to detect any chinks in the welding process.


1.jpg

"They are uncompromising on quality," he says. For example, all steel sheets going into VW's car are better quality clad steel. "Many raw materials like steel and plastic, were not meeting our quality standards and our vendors are importing them," says Mahesh Kodumudi, executive director (corporate purchasing), VW India. For example Indian polypropylene, used inside cars, had inconsistent quality and gave off an odour. "We forced the suppliers to import it," he says. The raw material makes 65-70% of the product cost and any rise can push up the end price by 5-6%.


2.jpg

There is an equally unrelenting focus on quality at their plants. All their cars are test driven. Each car goes through a body shop measurement system to ensure 100% build alignment. Subsystems like cockpit and front-axle are currently being done in-house because "sourcing and quality is right now not up to our expectations," says Holger Nestler, executive technical director, VW India.

All this adds to the cost. "We are convinced that our products allow us at least a 5% price premium. That we are absolutely ok with," says Chacko. Anything above that will have to be brought down. Though its time consuming and painstaking, they are feverishly working on indigenisation at every level. They know that a component that costs E100 in the western Europe costs E85 in India and about E90 in China to manufacture. "None of the Indian suppliers met our requirements on batteries. It took us two-three years to develop them but we worked on it," says Kodumudi.

When it came in 2007 virtually all components were imported. Today, out of 119 suppliers, 63 have been developed in India. Out of this, 20 are already exporting to VW's global plants. When Polo was launched its indigenisation content was 50%; it's now 75%. The only thing that is not indigenised is engine and transmission.

"That does not happen easily. These are pretty heavy investments," says Chacko. An engine plant will be critical to bring down the costs. To set it up the minimum volume required is of 200,000-250,000 units. Chacko is now strategising hard to get that scale in India as quickly as possible.

Expand the Base

He wants to increase the addressable market. "Today, just 35-45% of the market is accessible to us. We are doing well there," says Chacko. Now all efforts are on to launch a car cheaper than Polo. It earlier announced the launch of UP by early 2014. But it has been delayed as VW struggles to get the pricing right. Now all options are on the table. They could even drop UP and pick another more viable model from their vast portfolio.

Recently, VW's research and development (R&D) head in Germany dropped a hint. He told the media that the company is planning a new low-cost car brand destined for emerging market in the price band of E5,000-7,000. While this would fall under the big VW umbrella, it will not be sold under the VW brand.

Whatever the route, the strategy will be to have an indigenisation level of 90% for the small car when they launch. "We may not have it on Day 1 but we will aspire to move to 90% soon," Chacko says. With this launch, he hopes that their addressable market will rise to 55%.

Will they go below this price range? Chacko ponders and then replies, "I will not be competing in that low-end segment [of Alto, etc]. My market share is important but it is also important that we make money here," he says. A diesel plant too may be on the horizon. "We realise that investing in diesel [plant] in India is the right thing to do. Diesel is here to stay," he says.

VW will lean on two important weapons to get the scale effect in India. It plans to export around 15-20% of their India production. Already, it is looking at exporting Vento and Polo to Africa, Gulf and Latin America. With global 94 plants across the world, the opportunities are enormous.

Two, it will lean heavily on its group companies - Audi, Skoda and VW - to get the scale effect. Already, at the Chakan plant, Skoda Rapid, Fabia, Polo and Vento are being manufactured. With its thrust on modular platform where its group cars share lot of common components despite being very distinct brands, vendors too will get better scale.

Globally this year VW group will procure E80 billion worth products. India will buy E800 million worth of products. The group will use its size to get the best price and most efficient deliveries into its plants.

Article source: Economic Times
 
Thread Starter #4
Joined
Jan 31, 2012
Messages
1,080
Likes
194
Location
Delhi
Re: Road ahead for VW India

Will the Strategy Work?

"Remember, VW is a long-term player. Don't judge it by month-on-month sales. See what they have done in China over the past two decades. They will get things right in India - give them some time," says Vikas Sehgal, MD (automotive) Rothschild, a financial advisory firm. Sehgal may be right - except on three counts.

India is perhaps the most price sensitive market in the world, says Deepesh Rathore, MD, IHS Automotive India. In India, over 1 in 4 customers rejects a car because of price. In China, over 1 in 8 customers rejects a car for the same reason. And pricing is one area that VW is weak in. Thus, despite all its efforts, VW may still struggle to compete with fierce price-warriors like Hyundai and Maruti Suzuki.

Two, VW's size, scale and the portfolio are huge. But to reduce complexity and exploit scale it is increasingly standardising components to get efficiencies in R&D and production.

But while it brings new products from its global stable they need to be reconfigured and adapted well to the Indian market to improve customer experience, says Arora. The people's car in India is very different than the people's car that VW has known traditionally.

And if it gets all that right, there is one final thing it needs to understand - humility not arrogance is what makes a leader. "It must be very careful. Things can go wrong in a hurry - just look at Toyota's example," says Dunne. Is VW listening?

Article source: Economic Times
 
Joined
Feb 28, 2012
Messages
7,026
Likes
2,847
Location
Mumbai
Re: Road ahead for VW India

Very good article and effort from you worth reading every bit of if thanx a lot for your time, effort and contribution .
 
Thread Starter #6
Joined
Jan 31, 2012
Messages
1,080
Likes
194
Location
Delhi
Re: Road ahead for VW India

Very good article and effort from you worth reading every bit of if thanx a lot for your time, effort and contribution .
Thanks Raja, this article was published in ET few days back so thought sharing it with all TAI members.
 
Joined
Feb 10, 2012
Messages
5,939
Likes
213
Location
bangalore
Volkswagen India’s Entire Marketing Team Quits

Volkswagen India's topmost marketing team has quit, and the company's newly-appointed CEO is poaching from rival Maruti to stem an alarming slide in sales and revive the carmaker's ambition of cornering a 10 per cent market share in the next two years.

Neeraj Garg, director and member of Volkswagen's passenger cars division and the man responsible for the firm's six brands in the country, has expressed his desire to quit. He has been promoted and offered a posting in China, but ET learns that he has declined the offer. Sandeep Mandrekar, the head of sales for India and the second-in-command in the sales and marketing division, has also decided to move on.

Volkswagen has offered Garg's post to Maruti Suzuki CGM (marketing) Shashank Srivastava while Pankaj Sharma, who was working as general manager in Maruti's True Value business, will become the head of sales replacing Mandrekar. "I don't have anything to say and would like to reserve my comments," Srivastava told ET.

Sharma confirmed his decision to leave, saying he will be joining Volkswagen soon.

Volkswagen confirmed the departure of Mandrekar, attributing it to his desire to pursue opportunities outside the organisation. "Neeraj Garg has been promoted and offered an assignment in China, which is still under discussion," a Volkswagen spokesperson said.

ET learns that some other senior executives have also decided to leave.

New CEO Gerry Dorizas Cracking the Whip

But the Volkswagen spokesperson described it as "speculation". The departures come on the heels of a dramatic fall in performance for Volkswagen in the first three months of the new fiscal year. Sales have fallen 16 per cent to 15,539 cars while production slumped 30 per cent to 17,533 cars. Volkswagen's market share, which excludes the sales of subsidiaries Audi and Skoda, slid to 2.35 per cent from 3 per cent in the year-ago period. Gerry Dorizas, dispatched from Japan to turn around the Indian operations, is believed to be cracking the whip and had approached the Maruti executives with job offers after Garg and Mandrekar decided to leave.

The performance is all the more galling for the Wolfsburg, Germany-based auto giant, given that it is on the verge of becoming the world's biggest car company with the successful purchase of Porsche. Its brands are doing well in emerging economies like China and Brazil and it is pushing aggressively into the US with a new plant in Tennessee, and an Audi plant in nearby Mexico to serve that country's bigger northern neighbour.

In India, Audi and Skoda, VW's affiliates, are also posting strong growth that appears to have eluded the parent despite the presence of some of the world's best-selling brands in its portfolio.

Volkswagen India sells Polo, Vento, Jetta, Beetle, Passat & Pheaton. The sales slump, if left unchecked, may affect the firm's plans to grab a 8-10 per cent market share by 2014-15. "Volkswagen has its entire portfolio in diesel, but sales have been withering as the company failed to instill confidence in Indian customers of its superior technology and brand. It failed to provide enough features and specs in its cars unlike the Japanese and Korean and lost out to long-standing rivals in the Indian market," says Deepesh Rathore, MD-India, IHS Global Insight, a multinational consultancy.

A person close to the situation said the Volkswagen headquarters are unhappy over sliding sales and bulging inventory, especially of the Vento sedan, which is made in India for global export.

Volkswagen India's marketing team puts in papers as sales slide - The Economic Times
 
Joined
May 15, 2012
Messages
77
Likes
6
Location
bangalore
Re: VW entire marketing team quit's

bad news VW.. these changes are not a appropriate move at this time . Vw needs to rethink about their strategy on products , features, models and customer expectations and service.
Vw has many nice car lined up , believe in your strengths and most important respond to market needs and demands. gone are the days where oem's had their own set of design's and products in front of customers , but now markets are different and to remain competent and profitable go as per market requirements.
Hope Vw comes up aggressively from now..
 
Joined
Feb 28, 2012
Messages
75
Likes
2
Location
Bangalore
Re: VW entire marketing team quit's

Whats interesting is that few of Maruthi's top brass is joining VW now.

Will this mean a change in ASS?
Will VW be cheaper cars to maintain in the future?

As a VW owner, kind of not sure whether to be happy or sad now [confused]
 
Joined
Jan 21, 2012
Messages
2,882
Likes
295
Location
mumbai
Re: VW entire marketing team quit's

I really doubt that few people can bring such changes in a company.

agreed companies should not charge a premium to the cars just because of the badge.

it has to do with the attitude of the sales team.


looking at the current trend only new launches would generate interest in the public.

the same looking facia, the 3 pot engine and basic gadgetry for prices much higher to the competition are point which they need to look into to improve sales.
 
Joined
Feb 10, 2012
Messages
5,939
Likes
213
Location
bangalore
Re: VW entire marketing team quit's

the same looking facia, the 3 pot engine and basic gadgetry for prices much higher to the competition are point which they need to look into to improve sales.
That's right,VW just charges premium to all their product's but sadly i dont see them changing in this aspect, so expect another round of firing in the next 1 year.
 
Joined
Feb 10, 2012
Messages
5,939
Likes
213
Location
bangalore
Hyundai Motor India Ltd’s (HMIL) Director for Marketing and Sales, Arvind Saxena, has resigned, according to a report in The Business Line. The report stated that Saxena, who has been with Hyundai since 2006, is now expected to join Volkswagen as the head of its Marketing and Sales team for India.

According to the report, he is likely to replace Neeraj Garg, who is currently the Member of Board & Director, Volkswagen Passenger Cars, Volkswagen Group Sales India. Recent reports had indicated that Garg, along with Sandeep Mandrekar, Head of Sales at Volkswagen India, were both on their exit path from the German automaker’s Indian subsidiary.

The report also stated that Saxena had confirmed his resignation on Monday evening. Saxena’s duties in the interim would be handled by Rakesh Srivastava, Vice-President for National Sales at HMIL. It was also reported that Srivastava, in fact, had joined Hyundai in April this year after a 15-year stint at Maruti Suzuki. The report quoted a source as saying “Hyundai is already searching for a replacement for Saxena, who will likely join at an even higher position. The word is that the new person may even be from outside the auto sector.”

Hyundai's director Arvind Saxena resigns | WheelsUnplugged
 

350Z

Core Team
Joined
Aug 10, 2009
Messages
21,635
Likes
7,873
Location
New Delhi
Hyundai Motor India Ltd’s (HMIL) Director for Marketing and Sales, Arvind Saxena, has resigned, according to a report in The Business Line. The report stated that Saxena, who has been with Hyundai since 2006, is now expected to join Volkswagen as the head of its Marketing and Sales team for India.
I have met with Mr. Arvind Saxena. He is a really down to earth person. His significant contribution in the growth of Hyundai is highly commendable. Volkswagen is going to be at a great advantage this time without a doubt.

Drive Safe,
350Z
 
Joined
Feb 3, 2012
Messages
1,436
Likes
100
Location
Ghaziabad
Hyundai has created a website specifically for service of the vehicles where owners can view the status of service etc. I guess it should be Mr. Arvind's initiative. And I hope similar thing is introduced for VW vehicles too.
 
Top Bottom