India Will Be The Most Diverse Business Model In The World

India Will Be The Most Diverse Business Model In The World

Interview Volkswagen Passenger Cars India Most Diverse Business Model

In the market for over a decade now, Volkswagen India hasn’t exactly set sales charts afire. Last year, the VW Group launched an ‘India 2.0’ project to drive the next phase of growth in what it recognises as an extremely important market. Auto Tech Review recently spoke to Steffen Knapp, Director, Volkswagen Passenger Cars, to understand the company’s views on a variety of subjects. Clearly, the company’s commitment to India is unwavering.

With over 20 years of experience in the automotive industry, Steffen Knapp has been at the helm of a broad range of leadership roles across locations in Europe. During his tenure, he has headed several strategic and managerial positions across brands, including leadership roles at SEAT and Ford Motor Company in Europe. He holds a degree in Managerial Economics from European Business School Schloß Reichartshausen (EBS), Oestrich-Winkel, Germany and American Graduate School of International Management, Arizona, USA. In his current role as Director of Volkswagen Passenger Cars, Knapp leads the sales, marketing and aftersales activities in India. He lives in India with his wife and two children.

ATR _ The growth of the Indian automotive industry in recent times has been stymied by a variety of factors. What will drive future growth for Volkswagen India?

Steffen Knapp _ The fundamental for our growth will be the India 2.0 project. Our decision to produce and develop cars that are more Indianised and more locally engineered will move us into a next level. There are people who question us about being in the country for 10 years and yet having just a 2 % market share. I think it is a natural thing that you have to develop a brand first and it takes some time; particularly in a country where the segment we are selling in was not available 10 years ago and our target group was pretty small.

Moving our products into the heartland and creating value for money products within the India 2.0 project, which is related as you know to higher localisation, will enable us to grow in this country at a higher speed than the market. Our vision is clearly to get the Volkswagen group to a 5 % market share in the upcoming years, and for Volkswagen Passenger Cars, we’re striving for 3 %. With this, we’re looking to create a sustainable future for our ecosystem in India, be it our partners, ourselves or our customers.

Within the India 2.0 project, give us an understanding on the engineering and R&D work that’s scheduled to happen for VW.

When we created this project, we asked ourselves what were the necessary ingredients needed to be successful in this market, and what did we learn in the last 10 years. India 2.0 is all about developing the right product for the Indian market and be successful in India. That’s the first and key objective. And to be successful in India you have to do it the Indian way in terms of designing, developing and localising the products.

As a second step in the India 2.0 project, there are some other ideas. If Skoda is going to be responsible as a lead brand for India, a hub can also be created for Thailand or Malaysia. That is a potential second step, and is not our key focus at this stage. India 2.0 is clearly focussed on India.

Steffen Knapp said Volkswagen does not want to compete in the A00 (very small) segment as it believes quality, safety and the fun-to-drive element are key

In the current context, do you believe you have an adequate portfolio of products, especially in a market dominated by small hatchbacks?

I think our current portfolio is pretty okay. What we are missing is an A0 SUV, which we are going to provide to the market with India 2.0. In the SUV area, we need to invest further because the market trends are clearly going in that direction. We don’t want to compete in the A00 (very small) segment because for us quality, safety and the fun-to-drive element is key, and we do not see a business case in the very small area of the market.

The customer group we cater to – the aspirational middle class – go for slightly bigger vehicles. The Polo, for instance, is at the moment one of the biggest conquest machines for us. With a price point of ` 4.99 lakh, we’re attracting customers we never attracted earlier. They suddenly have the opportunity to drive one of the nicest and safest – if not the safest – car in this class.

There is absolutely enough for us to attract new customers into our brand. Later on, we have to have this A0 SUV, because it is potentially a very high growth segment. I also see a lot of opportunities in the Tiguan area. We grew by over 40 % in that segment last year over a year earlier, and could have grown by 100 % if we had more availability in terms of production. Cars in India will become bigger. There will be a day when India will understand that to become global, you don’t need a sub-four metre vehicle category.

So, you see the sub-four metre segment making way for bigger vehicles in the future?

If there’s no change in government taxation system, I don’t see it happening because it’s a substantial advantage for the sub-four metre category. The vision of the Indian government or governments in the past was to create an automotive hub. Today, the industry contributes 7 % to the country’s GDP and we want to grow even further. For the Indian industry to really become global, this sub-four metre category is stopping it. This is preventing entry of a lot of additional products in the market, particularly in the small car area. For instance, the Polo globally is above four metre in length, and to get that product into India, we have to develop it specifically for the Indian market. And that is a lot of cost.

If you are clever as a government you should open this to more than four metre because it doesn’t make sense. I understand why they did it at the time; it gave a lot of support to existing manufacturers in India. But from my point of view, if you really want to go global and you want to offer to your customers the most efficient, safe and quality products in the world, this is one step which could really enable this.

Although the global megatrends have their imprint in the Indian industry, the unique challenges and needs in the country might lead to a completely different kind of business model evolving?

India will be the most diverse business model in the world. You will have pure simple basic mobility like an Ola & Uber, and you’ll have private individual mobility for customers not wanting to purchase a vehicle anymore. Look at every industry today; consumers do not own stuff anymore. In the music industry, most of the apps are free in India, while in Germany – for example – you have to pay. Everybody gets everything for free here. And I see this growing.

How is VW preparing to meet the upcoming BS VI norms – both from your products as well as the ecosystem perspective?

We’re ready to do that, but the decision to not register BS IV vehicles beyond March 31, 2020 has an impact on us. We continue to produce all our cars, and to be honest, I don’t think that is a clever solution. From a personal point of view, it’s destroying value for customers. But in principle, we’re ready with the technology shift. From a consumer perspective, there will definitely be price hikes. If I were to buy a diesel vehicle, I’ll do so today as there will be a major jump in price post March 31, 2020. Technology wise it’s not that easy. You’ll see manufacturers opting out of smaller cars because they simply won’t be affordable for the customers. You’ll also see manufacturers going for partnerships all around the world in order to share the cost and have more economies of scale.

BS VI will push the market into a stronger petrol market. As a largely small-car dominated market, combining them with diesels do not make a lot of sense for the future. We’re talking of an additional cost of ` 1.5 lakh for a small car. In our case, we see a dramatic change because we are mainly catering to the big cities, where diesels don’t make a lot of sense in terms of a business case for the customer. We already see a move towards more demand for petrol.

Stressing the need for adopting a central approach to electric mobility, Steffen Knapp said it is critical to use the power of this country in total and not of different regions

There are numerous examples of improvements in diesel technology, yet there is this view that there is less appetite for diesel-related research in the industry.

I wouldn’t say there’s lack of appetite in research, but a lack of appetite in demand. Governments are pretty strict at the moment with this technology as they have to save the environment. There are reasons, and we’ve been one of the reasons too, why this is in discussion. We have to be very honest about that. We’re still developing a very good diesel technology. But it requires a lot of investment and in a value driven market like India, it’s not going to work. Even in Europe, we see a dramatic fall in diesels. Volkswagen around the world is getting more petrol production.

From my point of view, this is mainly driven by insecurity about the future of this technology. And this is catered by governmental discussions and restrictions because suddenly the movement went from CO2 to NOx. That was not the case in the past. Therefore the only solutions at the moment, and Volkswagen is heavily walking into this direction, is electrification.

To be fair with the government, there is a clear direction they want to take, but they need to create the right infrastructure. In Germany, for instance, people say we aren’t ready for electric mobility, but there are 40,000 charging stations. What does that say about India? The only thing Germany isn’t doing is to incentivise like Norway is doing. Electrification is surely going to be the future, also for India. India needs to be clear about the steps it needs to take, the standards, the subventions in order to make electrification successful.

India clearly also needs to focus on building an ecosystem to support EV growth?

There is the GST advantage for battery imports, and subventions are being planned for building battery factories. I do agree we need a 360° approach. For instance, if the government were to do away with import duties for electrified cars coming into the country, it would be easy. But it’s not happening because at the same time you have to protect the manufacturing base.

As Volkswagen, we’re in the waiting scenario because we have the technology. We invested € 40 bn in electrification, and we’re going to build cars for non-millionaires. It will be affordable in different markets, but with import duties like this, we won’t be able to sell in India. For me, the framework is something but the real implementable plan is a necessity. Once the elections are over, there will perhaps be a major push coming. The other thing is every state in India has its own strategy, which to my mind is not clever. We should have a central approach to electric mobility. Let’s use the power of this country in total and not of different regions.

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TEXT: Deepangshu Dev Sarmah

PHOTO: Bharat Bhushan Upadhyay