As German car maker Volkswagen India gears up to launch its mid-sized premium sedan Virtus on June 9, 2022, Ashish Gupta, Brand Director of Volkswagen Passenger Cars India, shares insights on the rapid premiumisation happening in India’s car market, the demand-supply dynamics and the persistent uncertain scenario on costs that is pushing the industry towards more frequent price adjustments. Edited excerpts: 

Q

Looking at the current market dynamics, how do you see the demand for premium cars coming up? 

The premiumisation of the Indian car market is happening very fast. Small car segment has degrown, while the SUVs and premium sedans segment took the lead. Customers prefer global technologies and safety features. The demand was at least 20-25 per cent higher than the industry’s capacity to supply, given constraints like semiconductor shortage, global supply chain disruption and the lockdown in China. On the demand side, we can see new developments like increasing interest rates, fuel prices and inflation. So in the next six to eight months, there will be a balancing between demand and supply. 

Q

How do these supply disruptions affect your production cycles?

The ideal production cycle is around 16 weeks. We have to plan at least 16 weeks in advance to make any delivery commitment to customers. Currently that visibility is down to a couple of weeks. We don’t know whether we would be able to get the components for our planned production in the mid of June. We are trying to manage as best as possible, while ensuring transparency with customers about the situation At the start of the year, we hoped the semiconductors issue would subside by second or third quarter this year. But it is very difficult to predict what will happen in next two to three months. Looking at the current situation and the environment around us, the semiconductor issue will continue for this year at least. 

Q

Raw material costs have seen sharp volatility in last one year. How has been the cost for you?

Input cost is a worry for all of us in the automotive industry. The price of steel has gone up by about €250 per car, which is approximately ₹20,000 per car. Besides steel, other inputs like nickel, semiconductors, precious metals, have seen significant price rise. Overall, input costs have gone up by about 10-12 per cent since the start of this year. The cost pressures now are immense. It is difficult to pass on these shocks to customers. So, we try to absorb as much as possible. But it is inevitable, that some part of it we have to pass on.

Q

Have you timed the passing-on of the costs to customers? We don’t usually see frequent price revisions in automobiles in India.

In the Indian market, historically the price steps are taken only twice a year, either around January-April or towards the end of the year around festive season. But this cycle is no longer applicable. As long as this cost volatility remains, the industry might have to take monthly price adjustments. Some companies announce price hikes in February, May, or July, depending on their supply chain and inventories. Nobody is in a position to absorb them even for a period of one quarter because impacts are so high. Unlike India, the monthly price adjustments is an accepted practice elsewhere in the world.

Q

As Virtus is being launched in June, what is the customer profile for Volkswagen premium cars and how are you making it attractive for them? 

For our kind of premium cars, customers are mostly in the age group of 35-40 years, a relatively young and aspirational lot. That is exactly our positioning also. Historically and for new products, most of our customers are upwardly mobile professionals, conscious of safety features. Traditionally doctors have been a strong segment for Volkswagen cars. For the hatch-back segment, the percentage of women customers is high. About 70-75 per cent of them buy through finance. In several places, people still prefer cash too. We have 152 touchpoints across 117 cities. While we are still an urban brand, many of our customers come from Tier-3 or Tier-2 towns to buy the cars. We have also expanded our service offerings for customers by introducing mobile service units and doorstep service assistance to increase service coverage. Service and spares costs have been brought down significantly, as a result, the cost of ownership has come down by about 28-30 per cent. This makes our brand more accessible.

(L to R) - P Ravichandran, Head of Dealer Development, Volkswagen Passenger Cars India, Ashish Gupta, Brand Director, Volkswagen Passenger Cars India and Garima Misra, Managing Director, Group Landmark in Ahmedabad during a showcase event for Volkswagen Virtus.

(L to R) - P Ravichandran, Head of Dealer Development, Volkswagen Passenger Cars India, Ashish Gupta, Brand Director, Volkswagen Passenger Cars India and Garima Misra, Managing Director, Group Landmark in Ahmedabad during a showcase event for Volkswagen Virtus.

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