Munich/Mumbai: Months after calling off a planned partnership with Tata Motors Ltd., Volkswagen AG signalled it isn’t shutting the door on a tie-up with the Indian automaker as it works on a strategy to bring budget cars to millions of cost-conscious buyers in the South Asian country.

Cooperation with the owner of Jaguar Land Rover Plc is possible “in principle" in the future, said Bernhard Maier, chief executive officer of Skoda Auto AS, part of the VW group. Volkswagen, which has been long considering making affordable models for India, will decide on its game plan in the first half of this year, he said in an interview at the Beijing auto show on Wednesday.

“We’ve been analyzing the Indian market in great detail," he said. “It’s highly, highly competitive. We’re taking a decision on how to enter this market shortly."

Unlike in China, where the German group is the best-selling foreign automaker, it hasn’t found similar success in neighbouring India, where an average Indian buyer prefers compact hatchbacks or sub-compacts made by Suzuki Motor Corp. and Hyundai Motor Co. Last year, the Japanese company’s local subsidiary sold 1.57 million vehicles, compared with VW group’s sales of 63,732 units.

Cost Savings

The planned tie-up with Tata announced last year was aimed at achieving cost savings and technical synergies but was scrapped in five months. At the time, they said they could revive cooperation efforts in the future if the conditions arise.

Total sales of passenger vehicles rose almost 9 percent to 3.23 million units in 2017 and the Society of Indian Automobile Manufacturers expects the trend growth to continue this year as well. VW targets 5% of India’s car market starting around 2025, Maier said.

Carmakers globally are forging partnerships as the industry comes under pressure from regulators after several major self-inflicted scandals and amid rising costs of developing cleaner cars to meet stringent environmental standards.

Changes to India’s crash and emissions regulations becoming effective around 2020-21 mark a potential entry point for the group, Maier said.

In 2020, Indian automakers are set to take a leap forward and switch to far stricter emission standards that are on par with those in the US, Japan and the European Union. India has the dubious distinction of being home to almost half of the 20 most polluted cities in the world.

Just like VW, Ford Motor Co. is also looking to give its lagging Indian operations a boost. It recently rekindled a partnership with local SUV maker Mahindra & Mahindra Ltd., a move executives say would put it in the fast lane to sustained profitability in the expanding market. Bloomberg