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Volkswagen to set up Rs 1,500-cr plant in India

Business Standard:  February 10, 2014

The company is examining possibilities to set up the facility, a final decision on which would be taken over the next few months

Greater Noida: To boost sales in India, German auto maker Volkswagen is planning to expand production capacity and introduce a slew of new models. The group, which had put on hold investments and new product launches due to uncertain economic conditions in the Indian market, said it was looking at investing Rs 1,500 crore over the next five years to set up a diesel engine manufacturing facility.

Mahesh Kodumudi, president and managing director of Volkswagen India and head of Volkswagen Group Sales India, said, “We have not launched a new product lately but that should not be construed as our lack of interest in the Indian market. We were consolidating our operations and are now ready for our next phase of expansion. We will be investing around Rs 1,500 crore roughly over the next five-six years.”

The resources would partially be utilised to set up a diesel engine manufacturing unit. The company is examining possibilities to set up the facility, a final decision on which would be taken over the next few months.


Besides, the engine manufacturing unit, the company is looking at expanding capacity to 200,000 units at its Chakan facility from 130,000 units currently.

“Our target to gain eight-10 per cent share in the passenger vehicle market may get delayed because of the uncertain political and economic conditions. But we do intend to be a volume player. We have to play in the compact SUV segment, sub-four-metre sedan segment, multi-purpose vehicle category and if possible go down to a segment where small car UP can compete. We are studying various options for product interventions,” added Kodumudi. The first of the new set of products from Volkswagen is expected to hit the market by 2016.

The engine plant in India will help the carmaker reduce costs and expand sales volumes by competing more aggressively with established players such as Maruti Suzuki and Hyundai. The petrol and diesel engines of VW are mostly imported from group facilities from South Africa, Czech Republic and Germany.

The company has to pay import (basic customs) duties on fully-assembled engines. Since the orders have to be made much beforehand (lead time for production and shipping), it additionally reduces flexibility in manufacturing.

Cost savings are important for being price competitive in the mass segment. The group's volume models made at Chakan include the Volkswagen Polo and Vento, Skoda Fabia and Rapid.

Kodumodi said, “One of the factors that delayed the launch of small car UP in India is -- we have to get the price-cost equation right. We were consolidating operations and adding depth to localisation programmes to be more competitive.”

Apart from Volkswagen, two wheeler maker Honda Motorcycle & Scooter India announced plans to invest Rs 1,100 crore to set up a new plant in Gujarat in its fourth facility in the state.

The new units will become operational in the second half of 2015. Besides, Japanese automobile maker Isuzu Motors also announced an investment of Rs 3,000 crore.

The company plans to set up a manufacturing facility, spanning over 107 acres, in Chennai. The proposed plant is expected to be operational by early 2016 and will create 2,000-3,000 direct jobs.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.