Skoda’s role in India 2.0 is part of VW’s larger plan

The Volkswagen Group’s decision to entrust Skoda with the lead responsibility for the India 2.0 project is part of a larger global strategy, which will see different brands take similar roles across regions.

In addition to India, Skoda will take care of Russia, while VW will handle North and South America as well as the sub-Saharan region comprising a large chunk of Africa. North Africa, meanwhile, will have another group company, SEAT, in the driver’s seat.

Structural realignment

Audi will co-ordinate West Asia and the Asia-Pacific region except China, which will be the responsibility of the VW Group. It is also acknowledgement of China’s importance given that VW is the lead player here with sales of over four million units in 2017. This is almost at par with India’s total sales of automobile in the last fiscal.

This ‘structural realignment’ will, therefore, see one lead brand assume the lead role for a clearly defined region across the world. Herbert Diess, CEO, VW Group, likens it to “distributing responsibility across several shoulders.”

As a result, it will be possible to decentralise roles, while ensuring that decisions are made quickly. Clearly, VW has figured out that it is important to have region-specific solutions to the extent possible, especially with emerging markets posing their own set of challenges.

For instance, India is a price-sensitive market which means that companies need to pull out all the stops in ensuring an efficient cost structure.

Skoda will now lead the way in India where VW’s Chakan plant near Pune will gradually emerge a manufacturing powerhouse for the world.

It is also likely that India and Russia (which is also Skoda’s responsibility) will co-ordinate operations and even have some common products.

The ‘Made in India’ vehicles could also be shipped out to the ASEAN region where the VW Group will be keen to boost its presence especially in countries such as Indonesia, Thailand, the Philippines and Malaysia.

Manufacturing for other regions will also lead to economies of scale at Chakan and ensure a healthy balance sheet. Yet, all this is still sometime away though the first product from VW’s MQB platform will hit the Indian roads in 2020.

Market response could determine the future course of action but it is logical to assume that the group is now looking at India with renewed energy.

The VW Group cannot choose to ignore India even if it is essentially a two-horse race right now, with Maruti and Hyundai accounting for a lion’s share of the market.

Skoda will have its work cut out in paving the way for a new road ahead, but will be encouraged by the fact that there will be more opportunities in the form of higher levels of affluence among India’s growing base of young professionals.

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