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Skoda to challenge Japanese, Korean automakers with India 2.0 strategy

In FY20, domestic sales of the company declined by 95.2% to just 25,736 units. (Mint)Premium
In FY20, domestic sales of the company declined by 95.2% to just 25,736 units. (Mint)

  • The company is expected to launch a slew of competitively priced mass-market cars and significantly increase local sourcing of spare parts.
  • Skoda Auto Volkswagen will launch its new product Kushaq, a mid-size SUV, in July and will try to compete tooth and nail with the two Korean manufacturers.

Skoda Auto Volkswagen India Pvt. Ltd-the local unit of Volkswagen AG–is expected to launch a slew of competitively priced mass-market cars and significantly increase local sourcing of spare parts for its products under the India 2.0 programme to revive the fortunes of its struggling India operations and effectively compete with the Japanese and the South Korean passenger vehicle manufacturers who dominate the Indian market.

After having entered the Indian market in 2007, the German vehicle manufacturer met with limited success as its offerings were considered expensive and came with a high cost of ownership as a significant number of spare parts were imported. In 2018, the Wolfsburg, Germany-based company though decided to invest almost 8,000 crore to revive its fortunes in India and offer more mass-market products to gain 5% market share by 2025.

In FY20, domestic sales of the company declined by 95.2% to just 25,736 units, compared to 1.46 million of market leader Maruti Suzuki India Ltd and 485,309 units of Hyundai Motor India Ltd, the second largest. In the April to February period of the current fiscal, Volkswagen’s sales dropped by 28% to a meager 18,415 units.

According to Gurpratap Boparai, managing director, Skoda Auto Volkswagen, one of the biggest problems for Volkswagen and other European manufacturers has been the total cost of ownership, simply because many of the parts were not localized. Hence, the final cost of servicing was higher than the others.

“This has changed now. We have brought down the prices of our existing parts and the products under the 2.0 strategy will come with very high local content and therefore easy to service and own. The other thing is to have constant product pipeline and product upgrades. That’s something that we are going to do," he said. “We made this mistake in the past and besides us, many others also made this mistake. You can’t be in India testing the waters because that approach does not work as you have to jump into the water. The commitment has to be whole hearted and that’s what we have this time."

Skoda Auto Volkswagen will launch its new product Kushaq, a mid-size sport utility vehicle, in July and will try to compete tooth and nail with the two Korean manufacturers, Hyundai Motor India Ltd and Kia Motors India Ltd, who dominate this segment. Competition in the segment will further increase as the market leader, Maruti Suzuki India Ltd, is also expected to launch its first product in 2022. Hence, the world’s biggest car maker will have a tough job to find a niche for itself in the segment.

The company’s last success in the mass market segment was with the Polo hatchback which was launch in 2012.

“The competition is stiffer in many other segments but this segment is dominated by two players. Definitely, there is space for more players unlike in some other segments where you have got 9-10 manufacturers. Here we are looking at the predominance of two and therefore I think, this is the tough segment but not the toughest. At the same time, I think we have a very competitive product," added Boparai.

Besides reducing the overall cost of the product compared to some of the successful competitors, the German carmaker is in the process of increasing its dealerships and service centres across the country and got on board some financially viable dealer partners. In the last two years, some of the company’s dealerships had closed down due to increased losses incurred due to falling volumes.

“This year we plan to sell around 30,000 cars after we sold around 11,000 cars last year and 15,000 the year before. So we are ramping up our volumes substantially. Towards the end of this year, we will sell around 4,000 cars per month and that’s before we launch the sedan. So, next year we will continue to grow our volumes significantly to launch our next product under 2.0 plan," said Zac Hollis, director, sales, service and marketing, Skoda Auto.

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