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How Volkswagen is leveraging its India plans to become the global #1!

Issue Date - 30/05/2012
Last September, Volkswagen edged past Toyota to become the second largest auto selling company in the world. It’s next target – grab the gold by 2018. It is already the largest in the #1 automarket, China. To further propel the company’s growth globally, Martin Winterkorn, the global CEO of VW Group, has set his eyes on the fastest growing automart amongst the BRIC nations. India. The work has begun. But Indian conditions won’t allow Winterkorn to have his way easily. And then of course, there is competition.

Digital media networks covering the Frankfurt Motorshow, a few months back, were abuzz about Martin Winterkorn, CEO, Volkswagen AG, visiting the Hyundai Motor Company pavilion. It was a pleasant surprise for the Korean giant as the CEO of the world’s second-largest automobile company started examining the new i30, which was meant to give serious competition to VW’s Golf. Winterkorn started by measuring the thickness of paint used on the lift-gate, then walked around the i30 grazing his knuckles across the hood-to-bumper shut lines to check for evenness. He then took a careful note of the interiors of the car. Hard to imagine what was going on in his mind, but his expressions indicated that he had some gaps in his thought-process which needed closing. Someone ought to give him answers. Winterkorn called for VW’s design head Klaus Bischoff, and demanded, “The lever for the steering wheel release makes no sound while moving. BMW can’t do it. We can’t do it. Why can they?” The chief wanted to know how Hyundai managed to make an adjustment mechanism to the steering that didn’t make any noise. Bischoff had no answer.

Winterkorn’s visit to the Hyundai camp clearly indicated the regard he held for the fifth-largest automaker in the world – a worthy opponent. The company wouldn’t want to give up its silver crown which it snatched from Toyota last September, not to even a respected, fast-growing automaker like Hyundai.

Volkswagen’s march-without-stumble in the global market has wowed onlookers. From being a lesser-known European brand to becoming the second-largest car-seller in the world (market share of 12.2% in terms of sales volume), the past four years – with increased focus on the BRIC markets – for the group have been least to say, career-defining! Five years back, new launches from VW were unheard of in most parts of the world. Today, every move of the company is discussed upon. Winterkorn knows that.

Two years back, VW’s claim of reaching an annual production mark of 10 million units by 2018 sounded like wishful thinking, Today, it appears that the milestone will be surpassed well before the set deadline. The automaker sold 8.16 million cars worldwide in 2011, a 14.3% increase y-o-y. Experts do claim that the company may fail to mirror its previous year’s performance in 2012. However, growing its annual sales by 1.84 million over a period of 9 years means growing sales at a CAGR of 2.29% starting FY2012. Selling 186,864 cars more every year – not difficult for VW. Not if we go by the work VW has been doing in the BRIC markets post-2009.

Winterkorn is serious about the BRICs. During the previous Christmas holidays, he summoned the bosses of the company’s operations in BRIC markets to the global headquarters at Wolfsburg, Germany. With its sight set on the #1 spot in the global automotive circuit by 2018, the CEO of the $162 billion-worth VW Group wanted to reiterate on and announce his gameplan of reaching the #1 position by digging gold in the BRIC nations. Needless to mention therefore, its performance in the bloc’s second largest (after China) and the fastest growing auto market – India – is crucial.

The journey of VW in India began four years back. Then, except for Skoda (which belongs to the same group), the company didn’t have much to relate to Indian car buyers. In fact, the brand was as unknown to the country as the country was to the brand. And this, the head of marketing of VW India, Lutz Kothe, actually got to learn through experience.

It was three on the clock on a chilly January morning of 2008 when Kothe reached The Park, a five-star hotel in Central Delhi. He was supposed to stay there for a few days. Kothe was exhausted. He had imagined that he could rest for some hours before heading to the Auto Expo (in Delhi). When he arrived at the hotel, he was in for a shock – a confusion had led to ‘no’ room being booked in his name. He tried to convince the hotel staff into giving him a room, claiming to be a VW official. All he got was two pairs of eyes staring blankly at him. “I could see questions on their faces at the hotel. They would have believed me even if I had told them that Volkswagen makes t-shirts,” says Kothe. That was the first time Kothe realised how less known the VW brand was in India – actually, it had no identity.

He got another learning in the hours that followed – the second on his first day in India. As Kothe reached the Expo, he was surprised to see that there were no VW cars on display. His panic was justified as the VW global board was scheduled to stop over. On being questioned, a VW India employee explained that the cars were there; only that they were hidden in a thick a layer of dust. Kothe got a fair idea of the challenge ahead: VW had to make machines run hassle-free in such an environment. Kothe has been with the company in India since, and has ensured that unlike Skoda, VW as a brand didn’t adopt a conservative approach in the Indian market. And that seems to have worked.

From a sales volume of under 500 units in CY2008-09, the car brand sold 78,281 units in FY2011-12. As compared to a market share of 0.2% in FY2009-10 and 2.6% in FY2010-11, VW has today captured 3.9% of the Indian Passenger Car (PC) market (FY 2011-12) – and is today the seventh-largest player in the country in this segment. That a company which was a late entrant in a cluttered market, zoomed past veterans in the Indian PC market like Honda Siel, M&M and Fiat in a matter of three years is laudable. But there is much work still left to be done. To become the largest seller of automobiles in the world, it has to at least get into the top three in India. The company’s top-down strategy in terms of product introduction did work initially. First, the Jetta and the Passat helped build a premium image for the brand in India. The company leveraged this early positioning of the brand with launches of the Vento and the Polo in 2010. That year, it also rolled out cars from its $36 billion manufacturing plant at Chakan, near Pune, which has an annual capacity of 130,000 units. The investment helped it keep pace with the demand in the Indian market. Today, Volkswagen is a strong player in India. Within four years, it managed to establish a manufacturing plant (in quickest time amongst all foreign players which entered India after Hyundai) and has even extended its customer touch points across 87 cities in the country. So far, so good.


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