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Skoda Auto Volkswagen India Pvt. Ltd, the local unit of Volkswagen AG, plans to introduce a range of new mass-market vehicles and source more parts locally as part of a strategy to revive its fortunes in a market that is dominated by Japanese and Korean automakers.

The world’s largest automaker is ramping up local sourcing of auto parts to offer more affordable ownership costs as it prepares to start selling the Kushaq mid-sized sport-utility vehicle in July. The Kushaq is the first product from the Wolfsburg, Germany based automaker’s India 2.0 project announced in July 2018 with an aim to strengthen its position in the Indian market and also grow vehicle exports from the country.

One of the biggest problems for VW and other European manufacturers in India has been the total cost of ownership as many vehicle parts were not localized, said Gurpratap Boparai, managing director, Skoda Auto Volkswagen. This raised the final cost of servicing compared to their Asian rivals such as Maruti Suzuki India Ltd and Hyundai Motor India Ltd.

“This has changed now. We have brought down the prices of our existing parts, and the products under the 2.0 will come with very high local content and, therefore will be easy to service and own," he said. “The other thing is to have a constant product pipeline and product upgrades. That’s something that we are going to do. 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 wholehearted, and that’s what we have this time," Boparai said.

VW entered the Indian market in 2001 through vehicles under the Skoda brand from its Czech Republic unit. It launched the VW brand in India in 2007 but has been restricted so far to being a marginal player in the world’s fourth largest automobile market.

The India 2.0 project entailed an investment of €1 billion with the model offensive spearheaded by Skoda and a target of 5% market share by 2025.

The Kushaq will challenge Hyundai Motor India and Kia Motors India Ltd, who dominate the domestic SUV market. Competition in the segment is set to intensify with the launch next year of a new mid-sized SUV model from car market leader Maruti Suzuki.

The Kushaq is based on an Indian localized version of the VW Group’s MQB A0 platform. The platform will also spawn the Taigun SUV model that will go on sale under the VW brand later this year.

“The competition is stiffer in many other segments but this segment is dominated by two players," Boparai said, referring to Hyundai and Kia who have a combined market share of 35% in the SUV segment.

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

Skoda Auto Volkswagen is also in the process of expanding its dealer and after sales network. In past two years, some of its dealerships had closed down as their losses swelled amid falling sales volume.

Zac Hollis, director, sales, service and marketing, Skoda Auto, said the aim is to sell around 30,000 cars in 2021, up from 11,000 last year and 15,000 in 2019. “So we are ramping up our volumes substantially. Towards the end of the year, we will be around 4,000 cars per month, and that’s before we launch the sedan," Hollis said. “So, next year, we will continue to grow our volumes significantly to launch our next product under the 2.0 plan."

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