Volkswagen is betting big on China to catapult it to the world’s top carmaker slot in 2018. This intent was reflected in an investor presentation made in New York earlier this year.
China is already the world’s largest automobile market with production of over 19 million cars and SUVs in 2012. By 2018, this number is expected to be closer to 30 million which will put the country at least 10 million units ahead of the US. Western Europe comes third at a little over 15 million vehicles.
India’s output, in contrast, is projected to be a little over six million cars and SUVs (twice today’s numbers) over the next five years. VW is a recent entrant here quite unlike China where it has been present since the mid-1980s.
“It is all very nice to say India will be a dominant force in automobiles, but China is leagues ahead. Our inconsistent policies on duty levies hardly help the cause either,” an automobile executive said.
Slowdown blues
VW’s arm, Skoda, entered the Indian market during the turn of this century before the parent followed nearly a decade later. Thus far, VW’s sales numbers have been modest at best and the current slowdown has been of little help with carmakers slamming the brakes on expansion plans.
VW has a plant in Chakan, near Pune, with a capacity of over one lakh units per annum.
This is home to mass volume models such as the Polo and Vento which share a platform with the Skoda Fabia and Rapid. This is part of the VW Group’s business model where assembly of top-end models, including Audi, takes place at Skoda’s Aurangabad plant.
While India is in the grip of a slowdown, VW is having a heady run in China where its joint ventures with SAIC and FAW clocked sales of over 2.7 million units in 2012. This number, by itself, translates into 30 per cent of global sales, a component that is critical to the German company’s vision of displacing Toyota as the world’s largest automaker.
€10-b Investments
In addition, with the slowdown in Europe and no indication of a turnaround happening in a hurry, carmakers are banking on emerging nations to offset the crisis. It is here that China and India, along with Brazil and Russia, have emerged top favourites. The future could see Africa and Indonesia also play a big role though that is still some years away.
VW has earmarked investments of nearly €10 billion in China where future growth will revolve around a ‘go west, go south’ strategy.
As the motto suggests, this will involve a sharper focus on western and southern regions of the country which are expected to be the new engines of growth. The next couple of years will literally see a blitzkrieg of models launched, including brands such as Bugatti, Bentley and Porsche, keeping in mind the upwardly mobile Chinese customer.
The critical lever here is VW’s MQB (modular) toolkit strategy.
This envisages a mega platform approach to assure greater commonality of parts which, in turn, will keep costs in check. Auto industry observers believe this will be VW’s biggest advantage going forward as it hopes to effectively strike the balance between a huge array of brands and economies of scale.
murali.gopalan@thehindu.co.in