The local unit of Volkswagen AG will start making a version of the Polo small car, modified for Indian conditions, in 2009 and is targeting to sell a million units in India over seven years, according to auto part vendors who attended a supplier conference last week in Mumbai.
Volkswagen is also setting up a vendor park in its factory in Chakan, Pune, they said.
Earlier this year, top officials, including CEO Martin Winterkorn and the board members of Volkswagen, criss-crossed the country to study Indian road conditions, before launching its first fully made car in India.
“They are modifying the car for local conditions such as bad roads, potholes, and (the fact ) that people use chaffeurs in even small cars,” said the chief executive of a parts making company who did not wish to be identified because it was a private conference.
Six of every 10 passenger cars sold in India are small cars and this segment is the second-fastest growing in the country’s nearly 1.4 million units a year market. High fuel prices and bad road conditions drive demand for sturdy, fuel-efficient models in a country of first-time buyers where only seven in every 1,000 people own a car.
This has prompted companies such as Nissan Motor Co. and Honda Motor Co. to develop compact cars modified to withstand Indian road and temperature conditions.
In the Indian city with the largest number of cars, New Delhi, summer temperatures can touch the high 40s (in degrees Celsius).
The modified car will be available in petrol and diesel engine variants, said another auto parts vendor on condition of anonymity. Volkswagen invited over 250 Indian vendors to its first supplier conference in India as it plans to have at least 50% local content when it starts making the models.
Volkswagen, which sources €70 billion (almost Rs6 trillion) worth of parts worldwide, has started audits of Indian auto part vendors to shortlist them for some of these supplies, the vendors said. The company issued a statement saying, “We will start our sourcing activities soon to find the potential partners for Volkswagen in India with local as well as global perspectives.”
The company’s head of sourcing, Pierre Bruegdam, refused to comment on specifics.
Volkswagen will make a million units a year of the new model at its plants around the world to sell in markets such as Russia and China, apart from India. In India, the company will start off with a capacity of 110,000 units a year.
“They’ve told us that we can bid for supplying for the whole million units a year if we want to,” said the chief executive of the auto parts firm. The company also intends to have up to 100% local parts by three years. Companies typically source the majority of their parts locally to bring down costs.
Volkswagen intends to earmark up to 100 acres of its 500 acres land in Chakan for a vendor park following the example of firms such Tata Motors Ltd, India’s largest auto maker by revenue, which is setting aside space for vendors for timely supplies.
Boosted in part by a growing domestic market which leads to a lower cost of production, India’s exports of auto parts have more than tripled since 2001-02.
Component exports may have crossed $2.8 billion in fiscal 2007 compared with $2.2 million a year ago, according to the Automotive Components Manufacturers Association of India, an industry body.
Sudha Menon in Boston contributed to this story.