Sep 11, 2008

Business - VW confident of doing well in India

"The Nano is a unique answer to the needs and aspirations of the vast majority of Indians. I think it's a wonderful move from the Tatas to give India its own version of 'people's car'." It isn't often that one is accustomed to hearing such effusive praise from a marketer, especially when the object of praise happens to have been concocted in a rival boardroom. But Detlef Wittig, executive vice-president and worldwide head of sales & marketing, Volkswagen, isn't shy of appreciating a smart idea and is visibly impressed with Tata Motors' disruptive innovation. Wittig adds that Volkswagen - which created the original people's car, the iconic Beetle - did toy with the idea of a similar 'price proposition-based' product, but dropped the idea as European markets are quite different from the Indian one: and doing something exclusively for India to replace the motorcycle market isn't one of the company's objectives at this moment. That said, the Indian market - where the group is investing close to Rs 3,600 crore - is obviously high priority for the Volkswagen Group, which owns seven marquee brands that include Audi, Bentley, Bugatti, Lamborghini, Seat, Skoda and the flagship Volkswagen brand. Of the lot, Audi, Skoda and Volkswagen are already in India, and in the first six months of 2008, the group recorded the highest growth in volume sales from the country (69%), as compared to other emerging markets like Russia (63% growth), Ukraine (50%), China (23%) and Brazil (22%). In contrast, European sales had a marginal 1.3% increase, while sales in home turf Germany went up 4%. And with India billed to become the fourth largest car market (as against its current position of No 13) over the next 10 years, it isn't surprising that Volkswagen wants to get its India act together, despite having been a late entrant. Wittig clearly has the opportunities and challenges in mind, even as he admits that the company's entry into India was delayed due to "uncertain auto policies, the group's inability to find a suitable JV partner for a long time and the absence of the right product". But Wittig wants to put the past behind him and Volkswagen, and focus on the future strategy instead: and that includes putting together a crack marketing team under KK Swamy (managing director & vice-president, Volkswagen India), adding more dealerships and introducing new models in India. And, of course, the launch of the Beetle next year is expected to go a long way in helping Volkswagen "find an expression" in the Indian market, as Wittig puts it. "If you have to build a brand, you have to highlight its roots, else you are just a commodity," he adds. "We want to be more than that. The Beetle will work towards enhancing the brand heritage of Volkswagen in the country." Volkswagen is betting on the Beetle's global 'cult' status as a means of pitching itself to Indian consumers. "Beetle's followers have great memories attached to it. Punch buggy (a car sighting game generally played by young children in which participants hit each other upon sight of a Volkswagen Beetle) is only a sign of the 'fun car' status the Beetle enjoys around the world," says Wittig, adding that India being a young country, it certainly has space for the car.

Yet, the Beetle cannot be expected to drive volumes for Volkswagen: rather, it will serve as the master key in Volkswagen's plan to secure 10% of the burgeoning Indian market within five years (currently, Volkswagen has less than 1% share of the Indian market). Incidentally, Volkswagen entered China in 1984 and has been able to grow significantly: in the first six months of 2008, the company recorded sales of 531,600 cars, breaching for the first time the 500,000-units mark in China over a six-month period. The moot point is whether Volkswagen has squandered the opportunity to make a similar mark in India, given its late entry. Wittig concedes that India's potential had not been correctly estimated back at that point in time. "Yes, we are late in coming into this market, but may be not too late," he says, pointing out that even some of Volkswagen's European competitors, who came in earlier, "haven't been tremendously successful either". Wittig says that the company has adopted a top-down strategy for India. Case in point: Skoda, which is a budget brand in many countries, but opted to enter India with the premium Skoda Octavia. Even the Fabia is priced at a premium when compared to rivals occupying the same hatchback segment. "We launched the Passat, which targets the upper end of the market. Then we brought in the Jetta, which is one step down, and now we'll soon have the Polo - not the one the world knows of, but its derivative that would fit in the Indian market," says Wittig. Given the record sales achieved by Volkswagen in the first six months of 2008 on the back of demand in India, Russia and China, emerging markets are the area of focus for the company. While Wittig finds the situation in China and India as being very interesting, he is sold on Russia - the nation is all set to become Europe's biggest car market by next year. He says: "The dynamics of the Russian market had gone unnoticed, much like India." However, considering the demographics and increasing purchasing power here, he feels India is all set to be among the Top 5 car markets in the world in coming years. Defining the key value propositions for each of the Group's marquee brands - Audi, Skoda and Volkswagen - Wittig says that Audi is sophisticated and clearly stands for luxury. "It is meant for powerful people who are sporty, like to be leaders, like to show off, though not necessarily aggressive in their manners." Volkswagen, on the other hand, is for those with average income, but with a penchant for showing off. "It may not fit in where a Nano does, but is affordable for people who are looking for more value," he says. On the other hand, Skoda drivers are more rational in their thinking. "With the Skoda Fabia, we scaled down from the Rs 1.5-million bracket (Rs 15 lakh) to Rs 6 lakh to cater to this audience," says Wittig, who has spent well over three decades at Volkswagen. The group soon plans roll out the Up!, which the carmaker hopes will go down well, given the inflationary trends and the recession afflicting the auto sector. However, Wittig feels the impact of the recession is not a cause for worry in emerging markets as much as it is in the US and Europe. "The recession there has caused companies to concentrate on compact cars, less fuel consumption and, eventually, hype about hybrid cars. There is a shift in production and engine mix in Europe. However, emerging markets are too dynamic, giving everyone a lot of room for growth," he says, adding that India, particularly, is more interesting than any other market as the situation does not change overnight like in China. "You are not dependant on the US situation. I have seen India since the mid-90s and the strength you have gained is admirable," he says. It's a strength that Wittig and Volkswagen would like to juice to the fullest.

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