Although for the German automaker the road to the top of world’s biggest carmaker was meant to go through India, the auto sales in the country are headed for their first annual drop since 2002, which signals big problems for VW.
Additionally, the company has captured only a third of the 10 % market share it’s targeting and factories are producing about 40 % of the cars they are capable of making. Not only are Volkswagen-badged vehicles typically more expensive than other brands, they also compete against models from sister brand Skoda.
Volkswagen isn’t alone in stumbling in India – GM has a share of about 3.5 % there – as global carmakers struggle to figure out how to succeed in what KPMG predicts will be among the fastest-growing auto markets through 2020.
VW’s “fundamental problem is an engineering culture that is incapable of building low-cost cars,” said Max Warburton, an auto analyst at Sanford C. Bernstein, who calls India the toughest place for a carmaker to compete in. “Skoda’s brand position has further complicated their job, but the issue is more cost than branding or marketing.”
Volkswagen, which aims to be the world’s largest and most profitable automaker by 2018, arrived at its models and pricing for India after comprehensive research and evaluation, according to Arvind Saxena, managing director of Volkswagen Passenger Cars.
“The definition of what is right or wrong for the Indian market is liable to keep changing over a period of time,” said Saxena. “The Indian car market has seen an unforeseen and unprecedented downturn over the last 12 months, which is due to a range of macroeconomic circumstances.”
VW’s lack of progress in India echoes the automaker’s also-ran status in the U.S., where it is being outspent on advertising and slow to plug gaps in its lineup. That is contributing to a decline in sales this year even as industrywide demand rose.
Sales of VW-branded vehicles in India fell 6 % in the first seven months of the fiscal year and those of Skoda tumbled 34 %. The slump has led Volkswagen and Skoda, which share facilities in India, to only utilize 40 % of their combined capacity, according to Deepesh Rathore, director of New Delhi-based Emerging Markets Automotive Advisors.