Bruised after ‘dieselgate’, VW is back with a bang

Looks at cementing presence in emerging markets like India

The week has begun on a dramatic note for Volkswagen. On Tuesday, it reported deliveries of 10.3 million vehicles in 2016, which will possibly make it the world’s top carmaker ahead of Toyota. A day later, the company announced that it had agreed to pay $4.3 billion to the US government as penalty and fines for the diesel scam of September 2015.

To some, this may seem a mixed bag where the company has had its share of good and bad news. The truth, though, is that it now seems to be coming out of the woods given its remarkable showing in 2016. The markets that posted good growth were Europe and China, which accounted for over two-thirds of total sales. Russia, South America and the US reported lower sales with the fall particularly steep in Brazil at nearly 34 per cent.

Till ‘dieselgate’ stunned the world in 2015 and brought its house tumbling down, VW was the epitome of an aggressive German carmaker. As heads rolled, the once proud brand became the object of scorn and ridicule. In this backdrop, it is astonishing how it has come back with a bang. Make no mistake, the sheen is not quite the same and the legacy of a scam will continue to be associated with the company. In addition, the hefty payout to the US government this week will be accompanied by indictments of a whole lot of employees who abetted the crime. To that extent, VW will be in the news but not under constant scrutiny as was the case through 2015 and 2016.

Benefit of diesel scandal

It was at the Paris Motor Show this year when Jurgen Stackmann, Member of the Board of Management, Volkswagen Passenger Cars, said that if there was one benefit arising out of the diesel scandal, it was the change in attitudes within VW where the way people worked together had “changed dramatically”.

The VW of today, he added, had crossfunctional teams at headquarters in Wolfsburg, which was perhaps unheard of earlier when people were happier working in silos. The challenge now was to open up the company to direct customer contact which meant moving from being “a more inward technology carmaker to one that is in the customer’s face”.

Funnily enough, this transition has already been set in place at its Indian operations where Michael Mayer, Director, Volkswagen Passenger Cars India, has been playing a key role. During a recent interview at Hannover, he said customer focus has been top priority where quality circles in dealerships have contributed immensely to the cause. “This will help us be more open and transparent and create a pool of loyal and satisfied buyers,” he added.

When Mayer first moved to India, he noticed that people perceived the VW brand to be expensive “but there was nothing more to set us apart”. Customers clearly want to be treated better with a premium brand, which meant the company had to build more awareness of what it represented especially in safety and quality.

Today, the number of women customers for the Polo is on the increase and accounts for nearly 25 per cent. What is even more interesting is that many of them opt for the top-end GT version which retails at a cool ₹9 lakh. “Woman customers tell me the Polo is safer and the quality stands out,” said Mayer.

Crisis time

During the ‘dieselgate’ period of 2015, there was uncertainty among customers in India too, who wondered what was going wrong. VW decided to face the crisis head-on and do its bit through voluntary recall of cars. “When you have an issue, it is important to be transparent and open without trying to hide,” said Mayer. “The recovery of sentiment and image after the diesel crisis showed that our credibility was intact. We came clean with customers who understood the issue but stayed with us.”

Eyeing Indian market

Stackmann had hinted in Paris of an ‘interesting’ launch for India where a small car or SUV would enter the market either this year or 2018. This would be a newly developed platform with two dimensions: one for markets like Europe, and then the global market which could become relevant for India.

While admitting that India was the “toughest market on earth”, Stackmann said the need of the hour was to look at technology for the future. “We have to stretch ourselves to create a presence in emerging markets with India being the reference point and benchmark,” he added.

This would mean ensuring a strong engineering presence and find low-cost solutions, “which cannot be done in Wolfsburg with the greatest people at the table”.

According to Mayer, there is a critical space for space for VW in India as people here are enthusiastic about cars coupled with high aspiration levels. “We now need to take that step in adapting to changing segments and customer demand,” he said. “The idea is to manufacture locally and then spread it out. Scale is important for viability that also explains why we need to look beyond India.” There are a host of other countries seeking inexpensive top car brands providing value for money and state-of-the-art technology.

While speed is critical in India, VW would rather focus on what needs to be done and then do it properly. “That is why I would rather wait for a year to get the right product and make it sustainable,” said Mayer. Beyond products, the company is keen on pushing its plans for electric and hybrid options too. Its India chief also believes that safety regulations should be a “standard hygiene factor rather than a competitive advantage”.

Published on January 12, 2017
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