The Power of Three

Abstract

Abstract It has three brands in play, but only flagship Volkswagen (VW) has captured significant space in mind and market. Now, the German auto group is looking to unleash the collective power of Skoda, VW, and Audi in India with the prospect of more brands being launched. Lutz Kothe first stepped on Indian soil in 2008 to attend the Auto Expo in New Delhi. At 4 am the head of marketing at VW India strode into the Park Hotel and, when checking in, said he was from Volkswagen. The name didn’t ring a bell with the front office staff. That’s when Kothe learnt his first lesson: Europe’s largest carmaker was a virtually unknown entity in India. Lesson No 2 was to follow soon. Kothe walked into the VW pavilion at the Expo but he couldn’t see any cars on display. Kothe panicked as the VW global board was scheduled to stopover. Then he realized why he couldn’t see the cars: they were all covered in dust. Over the next couple of hours he scurried around and got the place spick and span—in the nick of time before the board visit. Kothe’s second takeaway: if VW has to get it right in the country, it needs to marry German planning with Indian ingenuity. By all accounts, VW has been getting better at that endeavour with every passing year. It entered India late, but in just four years since it set up India operations, the German carmaker has sold a little over 1 lakh cars (till October 2011). Its seven models of compacts, sedans, and luxury cars have helped VW carve out a 3.5% market share—something the Detroit giants have not been able to do after more than a decade in the country. What’s more, the VW group is not a one-horse wonder. Globally, it owns a clutch of marquee auto names, from Audi, Bentley, and Lamborghini to Porsche, SEAT, and Skoda. In India, the group is present with three of these brands—Skoda came in first a decade ago, and Audi and VW hit Indian roads in 2007. The troika has still to collectively pull its weight in the group’s quest to become a carmaker to reckon with. But if ever there was a time to get the show on the road, it is now. The current slowdown notwithstanding, demand for and interest in passenger vehicles-from small cars to high-end luxury coupes-have heightened. That has emboldened the VW group to consider getting in more of its brands into the country-one-time Spanish auto major SEAT is likely to be brought in under the VW umbrella, as are luxury brands Porsche and Lamborghini (currently, they are imported by independent dealers). The Long Road Ahead Even as things stand today, the presence and power of multiple brands—VW, Skoda, and Audi—gives VW a distinct edge over many of its multinational competitors. ‘No other car maker with every model being so distinct,’ says John Chacko, VW group chief representative for India. ‘But naturally it will be the core brand that will have a lot of load on itself, in terms of (absorbing) investment, suppliers and volumes,’ adds Chacko. Backed by hatchback Polo and sedan Vento, the ‘core brand’s’ sales jumped 10-fold in 2010 to 32,627 units over a year ago. Till October 2011, that figure had more than doubled to a little over 66,000. Like most global carmakers, VW has adopted a top-down strategy, entering with the Passat and the Jetta (a large and a small family car, respectively). But it was only after the entry of the Polo (in early 2010) and the Vento (in mid-2010) that the pace of VW’s sales quickened. The company is now eyeing a market share of 10% by 2015. A chunk of that growth will come from the launch of the compact car up in a segment one rung lower than the Polo, by early 2013, benefits across the three brands. One synergy is in manufacturing. In 2006, VW invested Rs 3,300 crore in a factory in Chakan on the outskirts of Pune to produce the high-volume Polo and Vento. The unit, which can produce 1,30,000 units annually, also makes the premium compact, the Skoda Fabia, and will also roll out the soon-to-be-launched Skoda Rapid sedan.