It is only too well known by now how important China is to the Volkswagen group. This fact was driven home yet again in the German automaker’s first half results for this year where a break-up of sales in the BRIC (Brazil, Russia, India and China) region showed how China is making up for ground lost in other countries.

For instance, VW’s sales in Brazil during January-June fell 18.7 per cent to 301,000 units from 370,000 units in 2013. Russia was down 8.4 per cent to 143,000 units from 156,000 units. India witnessed the steepest fall with numbers crashing by nearly 33 per cent to 34,000 units from 50,000 units in the first half of 2013. Now compare this to China where VW’s sales soared to 1.82 million vehicles from 1.54 million, a jump of 17.5 per cent. Thanks to China’s incredible showing, the group’s volumes in the BRIC economies were up 8.1 per cent to 2.29 million units in the first half of this year from 2.12 million in 2013.

Key player

VW has made no bones about the fact that China is extremely important in its quest to emerge as the world’s largest automaker by 2018, ahead of Toyota which is now the lead player. It has set aside a staggering investment of €18.2 billion in China over the next four years which will see its group sales go up to four million vehicles. VW is already the market leader in the country with a 21 per cent market share and a host of joint ventures with local brands like FAW and SAIC Motor Corp. Its two key brands, Skoda and Audi, are targeting over 1.2 million units in China by 2018 with others like Bentley and Bugatti fuelling growth. On the commercial vehicle side, MAN and Scania will play a big role in the overall VW script.

India innings

India, in contrast, will see a more realistic investment of $250 million which will include setting up a diesel engine facility. The leadership team has already gone on record to say that it will bring relevant products to the market be it a compact sedan or SUV which are now the market’s top favourites. In the process, VW will have to focus really hard on localisation and keeping costs in check while ensuring that its dealerships meet top sales & service standards. In a way, it is like starting all over again despite being around for many years, something that a company like Fiat can empathise with in its India innings.

Things looked a lot more positive in late 2009 when VW bought out 20 per cent in Suzuki as part of a crossholding deal which was expected to be a critical growth lever for its Indian operations. After all, the Japanese automaker’s local arm, Maruti, is the clear market leader and VW would have doubtless benefited from this alliance. The two, however, just did not hit it off and Suzuki made it clear that it wanted out. The issue is now pending in the courts.

Apart from this obvious setback, there is also the inexplicable point of its subsidiary, Skoda not capitalising on customer goodwill generated during its entry over a decade ago. It was the Octavia which truly laid the base for the premium sedan in the country and this product from a relatively unknown Czech carmaker caught the fancy of the market. When VW set up shop here and got into sharing platforms with Skoda at its Chakan facility, a lot was expected from what seemed a formidable alliance which eventually did not deliver numbers.

Great expectations

Today, VW is more upbeat about India and knows this is a market it cannot afford to ignore. Sure, the numbers here are minuscule compared to China where the company has been around for over three decades. Yet, the growth story in India could unfold more aggressively post-2020 as a greater number of younger buyers enter the market and VW would clearly not like to miss out on such a huge opportunity. Will it then be able to create the China magic here? The next few years will better reflect the company’s intent in India.

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