VW bets on ‘technology trigger’ to propel growth

It is barely two months since Steffen Knapp moved to India as Director of Volkswagen Passenger Cars and he is already convinced about its immense potential.

Given that his company has been around for over a decade but has little to show in terms of market share, is this a case of misplaced optimism? Additionally, the recent decision to call off the joint product development drive with Tata Motors, one would presume, may have only put VW further on the back foot.

Knapp does not, however, share this grim outlook. “We are a premium carmaker and don’t come in cheap that means the customer is not ready, at least at this point in time,” he says. “Worldwide, we need a (cost-effective) solution since India is an emerging market and on its way to becoming the third largest in volumes worldwide.”

A global solution is important since there “are lots of things happening” in Malaysia, Indonesia, Thailand and the Philippines where a mobility option is viable without compromising on quality, technology and safety. Yet, it has to be both affordable and accessible and this is where India’s role comes in.

“If we want to be a larger global brand, we need to start now. If we get the solution done in India, we could use this as a blueprint for other parts of the world where situations are similar from the viewpoint of customer demand,” adds Knapp.

There is already a fair deal of work happening out of India in areas such as IT and auditing, which means the next big challenge is technology. This could be a big opportunity where “you can make it happen in other countries”.

The direction now is for VW group company, Skoda, to develop the platform since “they are more experienced than us in costing”. The Czech carmaker is already producing vehicles globally at cost levels, which appeal to certain customer groups. It, therefore, makes sense for Skoda to take the lead in India too where it has been around for over 15 years now. “You need to be more local and regional to be successful,” stresses Knapp.

This is going to take at least three years in coming since it will mean a likely downsizing of the MQB platform to make it cost-effective for India. The VW Director is not complaining, though. “For me, I better get the right product at the right price for this market rather than do something fast. If it means waiting for 2-3 years, so be it,” he says.

It is Knapp’s reasoning that powertrain development is complicated and expensive where people and suppliers are involved in the exercise. In addition, there are new realities to be reckoned with in the form of BS VI-compliant auto fuels in 2020, electrification and so on. All this means that it needs careful planning to get ready for the next growth phase.

“Technology could be a trigger for us in India especially in areas like electrification where we are confident of holding our own. The era after BS VI and electric mobility will be an inflection period for VW. We have to be very clever in product strategy and forecasting customer moods,” says Knapp while acknowledging that competitors will be as vigilant too.

He is also realistic enough to appreciate the fact that VW could be perceived as a strong brand in India though not “in terms of importance” in market share. Studies have shown that when customers are asked their brand preference, 34 per cent think VW, which means the remaining 66 per cent of customers “don’t know about us”.

It is this base that Knapp sees as a huge opportunity to tap and grow and this is where the Skoda-led initiative is so crucial going forward. He is also aware that Maruti and Hyundai are the two dominant players, which account for over 65 per cent of the market.

“Society is, however, changing so dramatically with the middle-class making good money and prepared to invest in mobility,” says Knapp. “A car is a key part of the family ecosystem and translates into a strong emotion. I do believe our products fit the bill.”

He cites the examples of Ameo and Polo, which are doing well though their volumes are “still not enough”. The idea is to work on this gap in potential as top priority instead of being obsessed about future product plans. As he puts it, the fundamentals need to be fixed today.

“We have the Polo, which deserves much more than its present market share,” says Knapp. “We can do a lot within the existing framework to get set for the next phase of growth.”

He is also intrigued by the peculiar realities in market share across regions where Chennai is a stronger market for VW than Delhi, which accounts for a larger chunk of overall car sales in the country. “There are chances to lift the performance to the same level across the chain but this is not easy. We need to work more,” admits Knapp.

The key is to make known that this is a premium brand, which offers the best in safety and technology but is definitely not the cheapest. The VW chief believes there could be a more targeted approach in building the brand. He then recalls the famous quote of Leonardo da Vinci, ‘Simplicity is the ultimate sophistication’, to drive the point home.

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