Volkswagen won't hike car prices by much once BS VI norms kick in: MD

Topics Volkswagen | BS VI norms

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

This October, the company sold over 3000 cars in the compact and small sedan segments which include their Polo and Vento models. Volkswagen's 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, which range in price between Rs 6 lakhs and Rs 12 lakhs and Rs 7 lakhs and Rs 14 lakhs, respectively, also account for around 50 per cent of VW's volume. While they are competitive at the entry points their real volumes come from top-end variants that are the highest priced in the market, which begs the question - will they see even more of a price increase by the time BS VI rolls out in March, next year? 

Dismissing the idea, Knapp said that for starters, diesel VW cars would be eliminated altogether from the company's line-up of cars that presently include Passats and therefore any change in price of petrol cars would be small. Knapp added that the company, which recently subsumed all its brands under one centralised leadership, benefitted 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."

Any and every car-maker will have their own strategy designed in order to pass on prices to their customers with a "soft-landing" says Kavan Mukhtyar, Partner & Leader - Automotive PwC India. "Some automakers have in the last six months starts hiking prices by a per cent or two at a time," he said. 

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 as that would shock consumers, especially in the ultra-sensitive segment which includes small cars costing less than Rs 8 lakhs and two-wheelers. 

Ironically, the only segment which is growing is the Sport Utility Vehicle (SUV) 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 believes that the company will bring 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.  

One auto industry executive, who declined to be named, said that most mainstream 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 said.

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