VW aims bigger in China as India lags

Volkswagen was in the news last week when its CEO, Martin Winterkorn, announced in Berlin that the 2018 target of 10 million vehicles would be achieved this in this calendar year - four years ahead of schedule.

It was perhaps only inevitable considering that VW reported global sales of 9.7 million units in 2013. Strategy 2018 is largely intended at taking the top slot ahead of traditional rivals, Toyota and General Motors, even while focusing on a host of qualitative parameters.

Yet, it was Winterkorn’s emphasis on China that puts the VW goal in perspective. “The growing headwinds in some emerging economies will put the automotive industry to the test. By contrast, China will remain the engine of growth for us and for our industry as a whole,” he said.

Today, China accounts for a third of VW’s sales which are generated by its vast kitty of brands right from Audi and Skoda to Bentley and Bugatti. With nearly 3.5 million units sold in 2013, the company is the largest player in China with a 20 per cent market share.

By 2018, the all-important year for VW, China’s car sales are expected to touch 29 million units, comfortably ahead of North America and Western Europe with 20 million and 15 million vehicles each. In contrast, India’s volumes are projected to be a little over five million units and VW’s share in this market is little to write home about, at least for now.

The truth is that China has just surged miles ahead and there is no way India can hope to bridge the gap in the near future. Companies like VW and GM are individually doing the kind of numbers in China each year which surpass India’s overall production of cars.

These two companies have also made little headway in this market where compact cars rule the roost and pricing becomes a particularly important factor in the buying decision.

“It is clear that VW (and GM) finds China to be a better business model where returns are assured. People there buy large, expensive cars while India still remains a very cost-competitive market,” an auto ancillary supplier says.

Little wonder that VW’s joint ventures in China will invest nearly €20 billion between now and 2018. This is a fourth of what the German carmaker has earmarked across the world, a clear indication of China’s importance in its roadmap.

Will India continue to be a relevant market for VW? The key lies in cracking the cost barrier and launching an affordable car on the lines of what Nissan has done with the Datsun GO. For the moment, there is no indication if this will happen in a hurry even while VW is leveraging its modular toolkit strategy across the world to keep costs in check. This boils down to using a core set of components across platforms which, in turn, allows an array of car models to be produced in a single plant.

Winterkorn reiterated that the group was also focusing on qualitative goals in Strategy 2018. It is here that the toolkit strategy is expected to be a “unique success”. As he pointed out, VW delivered around one million vehicles built using the modular transverse toolkit in 2013.

“This figure will be around two million this year. And the number of vehicles based on the toolkit will rise towards the four million mark in 2016,” Winterkorn said. By then, this strategy will be deployed in more than 20 plants in 12 countries right “from Germany to China, and from Mexico to Brazil”.

From VW’s point of view, the toolkits are evolving into a “core innovation platform” which allows the company to bring model variants, technologies and innovations into series production “rapidly and flexibly”.

As Winterkorn added, “they help us tailor our vehicles even more flexibly and more precisely to the wishes of our customers all over the world.

This means that we can offer our customers the freedom to choose which model they want to have with which drive”.

COMMENT NOW