VW sales in India serve as warning for other European carmakers image

With sales more than doubling in 2011 for Volkswagen in India, it looked like the automaker’s plan was going in the right direction, that of becoming the global vehicle sales leader.

Analysts predicted India would overtake Germany to become the world’s fourth largest auto market by 2015 with a volume of more than 5 million vehicles.

Volkswagen opened a €580 million plant in India, being the single-biggest investment by a German company made there, with the factory completed two years earlier than the estimated time. As three quarters of new car sales in India are made through loans, which is a financing level more often met with mature markets, Volkswagen got approval from authorities to offer its customers tailored financing packages. This way, the group quickly caught up to rivals like Toyota and Honda, which already had a big start.

But today, the VW Group can be a warning to other European carmakers such as PSA/Peugeot Citroen, which are considering expanding their brand in India. Why? The Indian market went down 8% to 2.55 million vehicles, which is the level back in 2011, after interest rates on car loans rose almost 12% in the middle of a currency crisis. The VW brand and Skoda cars have fallen quite drastically and VW isn’t the only automaker to stumble as India has made more than one European victim.

Peuoget has suffered heavy losses in the mid-1990s, backing out of the market a few years later; Fiat has also been undermined by a number of changes in its India strategy along the years, whereas General Motors stopped the Opel production there in 2006.

By Gabriela Florea