VW in reboot mode as aspirational premium brand

Steffen Knapp throws up an interesting analogy while discussing his company’s retail roadmap for India.

“We have told our network partners that we want them to sit in our boat and row in one direction,” says the Director of Volkswagen Passenger Cars India.

This is only part of a series of initiatives that Knapp has put in place to take the VW story forward in the India 2.0 phase that kicks off in a couple of years from now. It will see group company, Skoda, lead manage a drive to roll out competitively-priced products for itself and VW.

Knapp is clearly excited though he makes no bones about the fact that there are huge challenges ahead. Continuing with the subject of the retail network, he says it is important to make it stronger and more aligned with VW’s objectives.

According to him, the years ahead will be challenging even as the German auto-maker has been “very frank and open” with its dealer fraternity. While there have been a couple of terminations, the majority is sticking with VW.

For a while now, the entire auto industry is witnessing a slowdown across vehicle segments and part of the problem is being attributed to high inventories at dealerships. Knapp reiterates that VW is keeping its stock levels tight and is actually extra cautious in this volatile environment.

He also admits that the brand does not have a strong reach in the smaller Tier 3/4 regions where demand for cars is quite high. Yet, for a company like VW with its minuscule market share, the challenge is to balance out investments even while striving for a presence in these towns.

Pop-Up stores

This is where it is hoping to crack the puzzle with a new format of Pop-Up Stores, which are essentially low-cost set-ups. As Knapp says, these will help customers experience the VW world in a space that will at best accommodate two cars while the rest of the ecosystem within is digital.

A pilot is happening in Bengaluru right now and the idea is to cover 30 locations in the near future. From VW’s point of view, even if 10 cars are retailed each month from these Pop-Up Stores, it is a positive result for extending its brand reach in a cost-effective way.

“Our partners have been very enthusiastic about this project,” says a beaming Knapp. The fact that they are goading the company to step on the gas with this new initiative is welcome news especially in this period when dealerships are facing severe headwinds. “They are confident about this new concept and have faith in VW,” he adds.

Keeping network viability in mind, VW has also launched a standalone service contract drive. Normally, this is possible only with a dealership but now stakeholders are welcome to open a service centre especially when volumes alone are not adequate to support the retail business. During this bearish phase in particular, the service business can end up being a profitable option.

As Knapp explains, when the turnaround in the market happens and sales start booming all over again, these people can then contemplate setting up either a Pop-Up Store or dealership. For now, the existing network is trying out the standalone service drive in locations where money can be made.

Attrition challenge

Today, the biggest challenge in networks is attrition where the churn rate is in “amazingly high numbers”. The challenge, therefore, lies in retaining manpower and VW believes initiatives like these could help prevent a potential bloodbath that is already visible across some cities.

“There are lots of possibilities for people to grow and forge a career path for themselves,” reasons Knapp. For instance, dealers can even consider having their own training academy, which can be a cost-effective solution while complementing the efforts of VW.

“We are in the right direction with our network strategy. It is important to constantly push the envelope and focus on processes relentlessly,” he says. According to him, the traditional dealership model could change “quite dramatically” in the future thanks to the huge cost overheads like rentals especially in cities like Mumbai.

Customers are increasingly going the digital way and showroom walk-ins will reduce even as families get smaller and the way forward is the Dinks (double income no kids) model. Knapp says he won’t be surprised if Pop Up Stores end up becoming the face of the future especially with a host of mobility disruptions like electrification coming in.

Perhaps, the transition may not be so dramatic in India but it is impossible to predict the pace of change. Who would have thought some years ago that cellphones would virtually dominate the landscape?

Knapp agrees that electrification may not gain ground so rapidly in India but it is a different ballgame in Europe where the supporting ecosystem for the internal combustion engine will start feeling the pressure and a host of powertrain components could just end up becoming redundant. Manpower requirements for electric will also come down with fewer people queuing up for traditional ICE (internal combustion engine) parts and after-sales service.

In India, such disruptions are not going to happen for some years though there will be significant cost-related challenges with new emission and safety norms. This is where the business of used cars will see a huge increase which, in turn, will translate into good news for dealers as “an interesting revenue stream”.

Special corporate dealerships

Knapp’s other priority is the corporate segment, which has a huge buyer base in the form of medium and small scale enterprises as well as professionals like doctors, architects, lawyers, accountants. These people would aspire for a brand like VW and it is only appropriate that the company meets their needs.

“We are seeing growth here for sure and the next step is to have specialised dealers in what we call corporate business centres,” explains Knapp. The people are trained in corporate etiquette for this clientele and will literally lay down the red carpet for them.

VW carried out a pilot in Kochi, followed by Coimbatore and the idea is to have 35 such centres across India eventually with trained manpower. The company believes that the opportunities are immense given that there are enough and more affluent buyers across the country who would love be associated with the German car brand.

“We are moving VW to the next level in preparation of India 2.0,” reiterates Knapp. From his point of view, joint retailing of VW and Skoda is also something that could be explored as a business model so long as there are different teams clearly focussing on the individual brands.

“The core is exclusive teams and brand differentiation. If you are not able to manage separate teams, it will be bizarre. There is no point swapping people,” he cautions. There have been instances of joint retailing like Tata-Fiat that did not work according to plan and the partners eventually went their separate ways.

From the viewpoint of VW and Skoda, though, this makes sense especially for Tier 3/4 regions where there is no point splurging money for separate showrooms. Right now, there are exclusive VW and Skoda networks for big cities but the future could see the partners looking at a joint effort as they spread their presence across India.

‘Rebirth’

Knapp admits that time has flown by during his tenure here, which is nearly two years now. In his view, VW has “gone to the next level” in India and is experiencing “a kind of rebirth” where there is a lot of work happening on all aspects.

“It is a tough time because you can change easily when everything is positive and you are making money with new products, etc. However, when you change in a period which is more difficult, it is very satisfying,” says Knapp.

VW is now intended to epitomise the most aspirational premium brand in India. According to him, aspiration is ingrained in its core group of customers be it in their kids’ education, owning a home/car, promotions at work, etc.

“VW is a brand you buy in order to show that you have made it but in a way which is not vulgar or crass. You don’t need to drive a VW to show off but to say that you have made it,” says Knapp. From the company’s point of view, this means focussing on SUVs to woo the customer and this will be an important component of India 2.0.

“SUV-ness is the key and we will be a SUV brand. For this market, we have also identified total cost of ownership as the prime focus since this is ingrained in the soul of an Indian. He wants to reduce maintenance costs,” continues Knapp.

Necessary steps

The first things VW did was to move prices down 15 per cent on an average to make the brand more accessible even if it meant taking a hit on bottomline. “To change perception needs at least three years and in order to be ready in 2021 (for India 2.0), we reduced prices even though it was painful,” he says.

The second step was to go on a massive training drive at dealerships where there are now master technicians in all outlets to reduce cases of repeat repairs. “From a can-do attitude to actually doing it is a challenge in terms of conveying the message,” says Knapp. Additionally, there is a HR person in each dealership to ensure that special training sessions are carried out from time to time.

VW also kicked off a new initiative, 4EVER Care that will now offer a larger basket of free services and warranty. A new central warehouse has been commissioned in Pune for quicker availability of parts and will complement the efforts of its Delhi and Bengaluru depots.

Higher localisation is clearly the core of India 2.0 and the idea is to increase this to 95 per cent (from 82 per cent) while focussing on child parts too. This means that instead of buying modules, customers only need to change individual parts and keep costs down.

“The time has come to change the perception of VW and convey this message to our customers. The objective is to make it the most aspirational premium brand in India,” says Knapp.

Brand positioning

The positioning, he continues, is already defined and can only grow from this point. There is a broad hint from him that “you will see a different VW” at the Auto Expo, an all-new VW whose “DNA will be intact as a German engineering company but you will see us in a different light”.

Knapp is clearly confident that there are better days ahead for the brand. The India 2.0 initiative is, of course, the main trigger for this rebooting where both VW and Skoda are expected to chart out a new path in India.

“People need to understand that this is a company which knows where it wants to be,” reiterates Knapp. The point is to be accessible and reassure customers that this is not a high maintenance brand. The joint drive with Skoda is also expected to see better bonding between the teams where skills and competencies could be used by either entity.

Interestingly, ever since India 2.0 was announced, the VW Group has also been getting a lot of CVs from interested applicants who want to be part of the story. “There is a lot of potentially young talent coming in with good ideas, initiative and what have you,” says Knapp.

While all the action will be focussed on VW’s Chakan plant near Pune, Skoda’s Aurangabad facility is also expected to be a central part of the strategy. It will have a role for completely knocked down kits of top-end models and perhaps even for electric cars as and when mass electrification becomes a reality in India.

COMMENT NOW