Maharashtra Govt's decision on VAT refunds will determine investment in Chakan plant

A common engine plant for the Volkswagen, Skoda and Audi brands in India may start production by end-2014, with a final decision by year-end. The location will likely be the Volkswagen Group's Chakan facility, in Maharashtra, two top company officials told Business Line.

The move will help the carmaker reduce costs and expand sales volumes by competing more aggressively with established players such as Maruti Suzuki and Hyundai.

“This is one of the projects we are working on, and logistically speaking, it will be at Chakan. We need two years before it starts operations. A decision will be made by end of the year,” Dr John Chacko, President and Managing Director of Volkswagen Group India, said.

Mr Michael Perschke, Head at Audi India, said: “We will assemble engines at a group level. It will likely happen at Chakan, but no clear decision on the location has been decided yet.”

Key issue

Apart from attaining the right volumes to make an engine plant feasible – about 1,000 units a day – Volkswagen's decision also depends on the Maharashtra Government's stand on the VAT refund issue.

“Big investments plans are on hold right now, as we await a response from the State Government,” Dr Chacko said.

The Group has only “small-scale” assembly operations for engines at Aurangabad, where it assembles the premium Volkswagen and Skoda models and Audi's luxury cars.

The petrol and diesel engines are mostly imported from group facilities from South Africa, Czech Republic and Germany. On these engines, it has to pay import (basic customs) duties – about 7.5 per cent for fully-assembled engines. Since the orders have to be made much beforehand (lead time for production and shipping), it reduces flexibility in manufacturing.

Cost savings are important to be competitive in the mass segment. The group's volume models made at Chakan include the Volkswagen Polo and Vento, Skoda Fabia and Rapid.

roudra.b@thehindu.co.in

(This article was published on June 16, 2012)
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