Volkswagen bets $150 million on Make in India

Days after India’s Prime Minister Narendra Modi pitched for “Make in India” campaign in Hannover, German auto giant Volkswagen has unveiled its plan to transform India into a low-cost manufacturing hub, beginning with an investment of $150 million to produce cost-effective products.

“We are looking at making India a low-cost manufacturing hub catering to emerging and developed export markets. In 2014, we exported 65,000 cars which is 60 per cent of our production from the Chakan plant,” said Mahesh Kodumudi, Chief Representative of Volkswagen India, on April 17.  

He said the company aims to export 70,000 cars this year alone. It will further increase production capacity at the Chakan and Aurangabad units (both in Maharashtra) in the next two years. Volkswagen is focusing on building a brand and getting into the top Indian automobile segment. It is likely that two of its successful models — the Passat and the iconic Beetle, are going to be reintroduced with new features this year.

 Last year, Volkswagen produced 2.4 million units, and the target for this year is 2.5 million. Gauging India’s market potential, the company plans to produce about 4.5-5 million units by 2020. However, frequent policy changes and large currency fluctuations have affected the industry in last two years.

“Now we need the government to create stable policy framework and labour reforms, which need to be simplified. This will help gain the confidence of foreign investors. We also need to talk about FTA with the EU to help the growth of the industry”, he added.

The company is also in talks with the Indian government over a reduction in export incentives from 4 to 2 percent in the new Foreign Trade Policy.

Volkswagen AG chief executive Martin Winterkorn underlined that “India is and will remain an important strategic growth market for the Volkswagen Group.”

“We are convinced that VW will take on a key role in the Indian automobile market in the long-term. We are driving localisation forward with our new engine assembly plant in Pune,” he said.

This move comes amidst the backdrop of the February 2015 decision by Volkswagen to reorient its strategy in order to improve business operations, after the sales graph has witnessed a downward trend over the last three years.