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Volkswagen will increase localisation to cut costs and revive sales

Volkswagen plans to increase the number of locally made parts in its cars that it sells in India. This will help VW to price its cars competitively as India is a price sensitive market. It has been five years since Volkswagen entered India, but it has captured only 2.1 percent of the market as its cars are relatively expensive than other brands. VW is the market leader in china, but it in India it is still struggling to find a foot-hold due to heavy competition from biggies like Maruti Suzuki and Hyundai. The problem was aggravated by India’s worst economic slowdown which has decreased car sales in the last two years. This has compelled the German carmaker to introduce components from India in its cars in order to cut costs and increase sales. Director of Volkswagen, Michael Mayer said, “Indianisation is a keyword that we certainly learned about”. He stressed on making cars, more adaptable to the taste of Indian customers. He added that localization was not on their mind when they entered the Indian market in 2010 but now, it has become an important part of their growth strategy.

Volkswagen has now planned to raise the percentage of local content in their cars from the existing 65-70 percent to 90 percent. Volkswagen plans to build engines and gearboxes locally in India. President and managing director of Volkswagen, India Mr. Mahesh Kodumudi said that it would be an essential step to have a sustainable business model in the Indian market. However, VW has not yet decided when it would start building these parts locally. Sales of Volkswagen cars showed a decrease of 24 percent in the financial year that ended on March 31, 2014. According to industry figures, it ranked sixth among 14 carmakers in the country by market share.

Volkswagen has planned to invest $250 million in the coming five to six years in order to increase sources of local content, manufacturing and introduction of new models. In two to three years, Europe’s biggest carmaker will look forward to launch new cars in India. Government data shows that India has huge potential since car ownership in India is low at just 13 cars per 1000 people, while it is 34, 65, and 191 in China, Brazil, and Mexico respectively.

Pictures Source: Hindubusinessline