VW to explore new segments

Volkswagen’s future expansion in the Indian market will be in new segments and niches that could range from sub-compact cars to compact MPVs and SUVs.

The next big thing for VW is the sub-compact (or A00 as it is internally known) segment with the recently launched Up hatchback as the obvious choice. However, the German auto giant has not yet given the green signal for the Up in India, which explains why it wasn’t displayed at this year’s Auto Expo.

The Up project will require additional investment of at least 500 million Euro to build fresh capacity. This will include an engine plant in order to meet the high localisation levels required in this segment.

Huge volumes are required to justify deep localisation and meet the very tough cost targets to be competitive in the sub-compact segment, where cars like the Hyundai i10 and Maruti WagonR reign supreme. But, to achieve these huge economies of scale, the Skoda (Citigo) and Seat (Mii) versions of the Up could be produced. In fact, the Mii could mark Seat’s entry into India, expected in 2015.

However, the key to making the Up viable in India will be to spin off other body styles off the same platform, which are more lucrative than the staple hatchback. Key to the Up’s feasibility is a sub-four-metre notchback being developed specifically for India. Three-box cars command a premium here and VW will be banking on Indian buyers paying extra.

VW is also eyeing the compact SUV and MPV segments, which are poised to explode with a rash of new concepts and launches from Hyundai, Maruti and Ford. In fact, Dr Ulrich Hackenberg, chief of product development, hinted that he is studying these segments very closely, especially with the flexibility of VW’s upcoming MQB platform.

Company sources say VW is developing a Polo / Vento (A0) five-seat SUV and MPV. Also in the works is a seven-seat MPV which could share underpinnings with the next-generation Golf. However, this new family of MQB products won’t come here before 2014.

While the flexibility and reduced production costs (by an estimated 20 percent) open up several possibilities, the cutting-edge architecture and technology that comes with the platform will add to material cost and complexity. In the Indian context, this could be challenging.

VW is at a critical point in India where it has to take the next big leap for future growth but Wolfsburg isn’t as gung-ho about India as before. A lack of clear policies by the government for the auto industry has prompted VW to tread cautiously. However, it’s only a matter of time before a fresh wave of products pour into India, but that’s unlikely before late 2013.