VW set for new digital dynamics in post-Covid world

Steffen Knapp laughs when the Skype session begins. It takes a while getting used to the fact that he is sitting thousands of miles away in Austria, instead of the more familiar Mumbai corporate office.

“I think this will be the new normal for the next couple of months. Even though I love to see people personally, give friends a hug and so on, this will not be possible,” says the Director of Volkswagen Passenger Cars India.

Knapp has been in Austria for some weeks now as part of the precautionary steps VW took to have its leadership team back in Europe. “My home is Mumbai and the family is keen on getting back,” he says.

For now, Knapp is going with the flow on the lines of almost everyone around the world as Covid-19 has forced people to stay indoors. He concedes that it will be a while before the fear goes away completely. “People are going to be extremely scared about going out but we need to get used to living with this virus beyond the lockdown,” reasons Knapp.

As he puts it, there is no other option than to cope with this reality before a sense of normalcy sets in. During this time, new behavioural patterns will emerge which will have a bearing on the business of retailing cars.

“I do think online usage, be it in business or elsewhere, will increase,” says Knapp while driving home the point that Skype has been the tool for his conversations from Austria with over 100 dealers in India. People could even begin ordering cars from home as part of the new world order of zero contact at dealerships.

Contactless pattern

“This contactless pattern will grow with the online world being the new normal. This crisis will accelerate things even faster,” says Knapp. He cites the case of Sweden, which already has 15 per cent of cars sold online and this will be the case in the future even though normalcy will set in eventually.

The VW India chief agrees that companies will also ask themselves why they need so much space for glitzy offices when employees can interact with each other online. “Excesses will not be needed and I can see for myself that efficiency has not been remotely compromised in this work-from-home period,” he says.

On the contrary, people have more energy thanks to travel time being saved, especially in cities like Mumbai. “Speaking for myself, I am much more focussed online. This is direct communication and I don’t need to get distracted in an office setting where people sometimes yawn or play with their cellphones,” elaborates Knapp.

While admitting that nothing is better than sitting together and “getting the creative juices flowing”, he is of the view that online work can also provide for casual breaks. While this is really nothing new for tech people, it is still an all-new experience in the world of manufacturing.

“We will definitely see an aggressive digital world with online sales happening even though the personal interaction part will come back eventually,’ says Knapp. He is especially delighted with his colleagues in Mumbai, some of whom are coping with Skype and the like even while balancing the realities of living with families in small apartments.

“We have a coffee break sometimes where a bunch of people chat and show me paintings or sing in unison. I am proud of my team and we trust each other. This kind of warmth will otherwise never happen on a Skype call,” says Knapp.

He is reasonably confident that people will also realise that they are missing something while working from home. This is when the “physical elements and warmth will come back to an extent” even though the world will have changed dramatically.

New ways of working

Things will, of course, be different at the factory level, where manpower needs to be physically present to put the car together. Yet, even here, there will be extra precautions to ensure social distancing on the production line.

“The way people interact will also change thanks to interventions like constant sanitising and temperature monitoring,” says Knapp. The VW Group’s India facilities in Aurangabad and Pune have over 4,000 workers with detailed booklets explaining how people need to take care of themselves in terms of hand cleaning. “There is a 360° change in the way production will now happen in auto companies,” he adds.

Knapp is also not entirely certain if customer attitudes will change post-Covid from the viewpoint of greater desire for personal ownership of cars. There is a school of thought that people will now be hugely paranoid about taking shared rides in an Uber or Ola.

“I personally prefer to take the middle track, and not get into black and white, when asked to respond on issues of personal ownership going up after Covid-19,” he says. In China, which is the biggest market for VW and now back to normal, customers are using individual cars much more while avoiding public transport as much as possible.

New revenue model?

Consequently, there is far greater traffic congestion in China and the same may just happen in India where usage of Uber and Ola “may see a dip initially”. Yet, Knapp does not believe that all will be lost since these operators could still make a new revenue model out of the situation.

For instance, this could take the form of a fully sanitised Ola which is cleaned every hour and the fare will be at a reasonable premium. From Knapp’s point of view, this is inevitable since shared mobility will not disappear overnight in India for obvious reasons of affordability and congestion on roads.

On the other end of the spectrum, he believes that a move to individual/personal mobility will see a surge initially, especially if it is made attractive with financing packages/leasing options and a guaranteed residual value. The other big opportunity is used cars which are easier on the wallet as mobility options.

Again, while reverting to China, the used car industry has literally zoomed with people looking for affordable mobility. As Knapp explains, not very customer can throw in money for a new car and it is in this context that a used car becomes a more viable option.

Beyond this, there could be new groups of Covid-free people who can take joint rides and share costs. “We can support this by offering value and could even connect people,” he says. In turn, this will ensure better utilisation of vehicles.

It is also likely that customers will increasingly go in for compact SUVs as part of the drive to keep an eye on costs. Yet, all this will be temporary reactions before confidence levels return. Knapp cites the case of Austria, where small shops were opened up recently and people just made a beeline for them. “They were tired of being indoors for so long,” he says.

As for the India challenge, the VW India chief says there are “multiple things to manage” where the company should be seen leading the system and showing the right signals. “Vendors and dealers depend on us since we are making products and steering the brand,” he adds. While on the one hand, it is important to ensure that these business partners are not starved for cash, Knapp says it is equally important for the company to keep itself in a healthy position financially. At a global level, VW has faced a bigger crisis in the diesel scam of 2015, which burnt a huge hole in its pocket.

Liquidity situation

In the process, the company was forced to change its outlook and today there are crisis managers who are handling the Covid-19 situation as efficient firefighters. “The liquidity situation in India is stable and we are in a good space with our vendors/dealers. Yet, we need to be ruthless on incurring needless costs and relook at spends that can be either cut or deferred,” says Knapp.

The VW Group has earmarked substantial investments for its India 2.0 initiative, which will see Skoda and VW collaborating and rolling out competitively priced SUVs. This outlay for India 2.0 will not be touched but a whole lot of other overheads will face the axe.

“I believe you need to constantly revisit your plans because you could get complacent otherwise. We now need to tighten belts for sure,” says Knapp. This becomes particularly important as automakers now gear up to gradually resume operations and need to monitor daily expenditure carefully.

“The top priority is the health and safety of our people,” he reiterates while being categorical about the fact that the decision to “lock down this way” was the only solution for India. Knapp also supports the move to have a staggered approach in easing the lockdown.

“A slow but steady approach into normalcy with a small workforce is important to signal a clear opening,” he says while driving home the fact that daily wage earners need to be protected at all costs. Yet, there is some concern about the lack of clarity on policies as was evident during the lockdown when trucks were not allowed to carry essential goods.

“India is a big country with different regulations for states. When we open, we need trucks and drivers,” says Knapp. Whether that will happen remains a million-dollar question, especially in States like Maharashtra, where individual authorities are busy interpreting rules according to their own whims and fancies.

VW has its plant in Chakan near Pune, which is also home to a host of other automakers like Bajaj Auto, Mahindra & Mahindra and Mercedes-Benz India.

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