Volkswagen is working on a new range of lower capacity engines and smaller sedans for India, in order to meet the Government’s lower excise tax bracket of 12 per cent (cars below four metres length).

With a view to lift languishing sales, the move will expand the German brand’s mass car portfolio and lead to a sharp drop in prices of existing models such as the Polo hatch and Vento entry sedan.

John Chacko, Volkswagen Group Chief Representative for India, told Business Line that part of the plan is to reduce the 1.6-litre diesel engines used in Polo and Vento, to 1.5 litre.

This by itself will lead to a 3 percentage points drop in excise duties for the Vento from 27 to 24 per cent. “I plan to change the engine range with a totally new set that is under development and will help us meet the regulations. There are a few surprises coming,” Chacko said.

At present, passenger vehicles above four metres length attract a 24 per cent excise duty. However, those that additionally have an engine capacity above 1.2 litre petrol and 1.5 litre diesel are charged a higher 27 per cent excise (with ad valorem rate).

Volkswagen is also working on a smaller sub-four metre sedan, or notchback, on the ‘Up’ platform. Positioned below the Polo, the Up compact city car was launched in Europe in April this year.

Sales numbers

In 2011-12, Volkswagen had recorded a 52 per cent sales growth at 78,281 units. This year, between April and August, sales plummeted 19 per cent to 25,306 units. The Polo saw a 14 per cent drop, while the Vento sedan saw a sharper 28 per cent decline - both on low demand and relatively higher success of Skoda’s Rapid. “This move could mean a huge drop in prices - by up to Rs 50,000-60,000 for sedans. It could make or break a product,” an industry official said.

Volkswagen’s strategy mimics that of market leader Maruti Suzuki and Tata Motors. Maruti’s popular new Dzire compact sedan falls under the lower tax bracket, while Tata’s Indigo CS also follows the same principle. Mahindra is also working on a sub-4 metre Verito.

Many new compact SUVs being launched, such as the Ford Ecosport and Mahindra Quanto, will also fall into the lower excise slab.