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Updated: November 19, 2012 02:47 IST

Automobile market still on the positive side

Ramnath Subbu
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It may not be good now, but has tremendous potential over the medium- to long-term

The Indian automobile industry is today bearing the brunt of the economic slowdown. Arvind Saxena, Managing Director of Volkswagen’s passenger business in India, discusses with The Hindu the challenges facing the industry in this interview. Excerpts:

With the Society of Indian Automobile Manufacturers (SIAM) scaling down the growth prospects, how do you see the prospects for the industry in the current year?

The important factors that drove automobile sales about eight or nine years ago were the interest rates and fuel prices. Interest rates were 7-7.5 per cent compared to 11.5-12 per cent today.

Second, petrol prices are much higher if you really look at price parity compared to other world markets. In some markets, fuel price may still be higher but what Rs.100 means to an Indian and what it means to a European or American is different. These are the two main factors impacting sales.

The third factor is that in India, car buying happens when the sentiment is positive. However, at this point of time, the economic outlook is very low, probably the worst in recent times. Last quarter, the economy grew 4.9 per cent, and anything below 5 per cent at India’s base level is very low. The less than optimistic scenario also puts pressure on the ‘feel good’ factor, and consumers become a little more conservative.

That said, some segments such as sports utility vehicles (SUVs) are doing very well but that is due to different reasons like their use in people movement. If you take SUVs out, car sales would be almost flat.

How does the slowdown affect the plans of a large company like Volkswagen?

What has played out is no doubt different from what we anticipated. Nobody expected things to shape up like this. We normally have a three-year or a four-year plan, and those now look lower than what we had assessed. But for any automobile company, plans and investments are on a long-term basis. There could be blips along the way but then we are here for the long run. While the lower sales volumes upset us, it does not change much for us in the long run.

What is Volkswagen’s strategy given the extremely competitive scenario and the changed dynamics of the industry?

Our strategy looks at the short-term and the long-term. For the short-term, we are looking at creating a more value proposition for our customers through features and finance. We have a ‘Refresh’ campaign to offer customers better value in our vehicles at attractive price points.

Auto finance is a key issue, and we have tried to address what is one of the key parameters affecting the automobile business by offering attractive rates for our customers. We think this should help us in overcoming some of the sluggishness in the market as far as our products are concerned.

The SUV segment has grown well in India and Vollkswagen has a presence through Touareg. What are your plans to take advantage of the growth in this segment?

The Touareg is a high-priced offering, targeting hardcore enthusiasts. It is not something that will make a big difference to our volume or share. It is more a demonstration of what we stand for in terms of technology, safety and the like.

The SUV segment growing here is the lower-end of the multi-utility vehicle (MUV), multi-purpose vehicle (MPV) and SUVs within the price band of Rs.9-13 lakh. As of now, we have no offering in this band. We are exploring different segments and products, and will decide at an appropriate time.

What would be the logical extension of your existing portfolio here considering that internationally Volkswagen straddles a wide spectrum of automobiles? What about a low cost or entry-level car?

We believe we are fairly well represented in the Indian market though the gaps in our product line are smaller cars — cars smaller than the Polo — and the SUVs/MPVs. Unfortunately, we have seen that the sales volumes in India stay in the smaller cars while the growth is much higher in the SUV/MPVs segments. So, the action areas are these two, and we are exploring the possibilities.

We will surely look at smaller cars but I am not sure if we will consider low-cost cars because getting viable products at that price would be very difficult to support with our brand expectation. Today, buyers have certain expectations from the Volkswagen brand — sturdy and safe vehicles which are good to drive. If you try to meet all these attributes, you cannot really go down the price point. So, our product could be an entry-level car or small car but not a low-cost car.

The small car would continue to remain a dominant part of the Indian market, and another segment, like I mentioned, is the SUV/ MPV because of the market structure. Most of these are developing on the back of diesel offerings. So going forward, growth could come from mid and premium small cars and the SUV/MPV segment, which would become dominant segments.

Could India, at some stage, evolve as a regional sourcing base for Volkswagen?

It is difficult to say right now but some of the markets will be catered to by us. We are already exporting products such as Vento and Polo to markets such as the Middle East and South Africa. But, in future, it will depend on the products we have on offer here, and the markets we could export to.

Going forward, what is your view of the Indian automobile market, and where does it go from here?

The Indian market has tremendous potential over the medium- to long-term, and that is why everyone is here and looking for new opportunities. Even if we were to say that the market is not good now or is very tough, it is still on the positive side, and I do not think it will ever be negative.

India has a very low penetration of car ownership, and, from an affordability viewpoint, income levels are rising rapidly. So, the overall profile of customers is moving towards where they should become car owners, and, in 5-10 years, there is no doubt that will happen.

Right now, we are seeing a very tough phase, and everyone is looking ahead. All agencies estimate India to be the world’s third largest automobile market by 2020. From 2.5 million cars today, it would double to around 5 million by then. That is a huge jump, and there is a piece of the pie for everyone which is why everyone is looking here.

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