Diesel cars to be ousted of VW's line-up after BS-VI rolls out: Officials

Volkswagen's Steffen Knapp
In an increasingly tough market, small volume foreign car-makers trying to boost market share face the twin challenges of trying to grow sales while grappling with an auto downturn in an environment where regulation-related cost are eating into margins. Case in point: Honda Cars India saw its volumes decline by 30 per cent for October. It wasn't alone. Toyota Kirloskar Motors also saw volumes contract albeit by a smaller 5 per cent. For the Volkswagen brand the results have been better with a 20 per cent jump over last month's sales but the next four months will determine how the next 2 years will pan out, its executives say. 

This October, the company sold over 3,000 cars in the compact and small sedan segments which include the Polo and Vento models. Volkswagen managing director Steffen Knapp said. "The group is investing heavily in the brand and related products across the group and the following months will see localisation increase from 82 per cent to 94 per cent in line with plans." 

The Polo and Vento that range between Rs  6 lakh and Rs  12 lakh and Rs  7 lakhs and Rs  14 lakh respectively, also account for around 50 per cent of VW's volume and while they are competitive at the entry points, their real volumes come from top-end variants that are the highest priced in the market. This begs a question: Will they see even more of a price increase by the time BS VI rolls out in March of next year? 

Knapp dismisses the idea adding that for starters, diesel VW  cars will be eliminated altogether from the firm's lineup of cars that presently include Passat and therefore any change in price of petrol cars will be small. Knapp goes on to add that the company which recently subsumed all its brands under one centralised leadership has benefited from the streamlining. "Where there were 3 CFOs, there is now one which speeds decision making and resources such as manufacturing, sales and marketing are shared with advantage."

Every carmaker will have its own strategy designed to pass on price benefits to their customers with a "soft-landing", says Kavan Mukhtyar, partner & leader, automotive, PwC India. "Some automakers have in the last six months started hiking prices by a percent or two at a time,' he says. 

His point is that in April next year by the time BS VI regulations become the norm no company would like to announce a 10 per cent or a 15 per cent price hike at one shot as that would shock consumers, especially in the ultra-sensitive segment that includes small cars costing less than Rs  8 lakhs, and two-wheelers. 

Ironically, the only segment that is growing is the sport utility vehicle segment one where VW’s presence is limited with just one product offering — the VW Tiguan, which some feel at over Rs  30 lakhs is too expensively priced for the Indian market. Knapp says that the company will be bringing in a more competitively-priced city SUV in the near future. Expect that to be in a similar price and size category as Hyundai's Creta.  
An auto industry executive, who declined to be named, said that auto makers are watching each other closely to see who will blink first and hike prices. "War-rooms and strategy teams are actually trying to figure this out in real-time," he said.

"Equally there's also a group of automobile makers that will absorb the costs for say a quarter or two, see how the market settles and then take pricing calls," Mukhtyar says.

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