Daily Management Review

Volkswagen's Skoda Pins Its India Revival Hopes On Tougher Emission Norms


Volkswagen's Skoda Pins Its India Revival Hopes On Tougher Emission Norms
The hope that the Indian government will enhance the regulations for cars sold in India to levels that are comparable with the developed market is being latched on to by Volkswagen-owned Czech carmaker Skoda for to turn around its fortunes in a market where its growth has stalled.
Skoda has been tasked with the rather challenging job of propping up the market share of VW to about 5 per cent in India. In this task, Skoda faces tough competition from home-grown automakers including Maruti Suzuki, Tata Motors and Mahindra & Mahindra that tend to dominate the market.
Stricter emission standards are likely to be among the new regulations to be implemented in India which is likely to prop up costs of manufacturing for the domestic carmakers. This will force the Indian companies to raise costs for their vehicles in the Indian market, set to become the third-largest car market of the world by 2026.
That could turn out to be a hard proposition for the Indian companies because of the need for them to make heavy investments to hold on to their cost advantage. it could also be a possible opening for companies like Skoda. The Volkswagen-owned Czech carmaker is set to unleash a new strategy in India and time its implementation with the regulatory changes.
"The strategy was approved keeping in mind future regulations that would help us get competitive," Gurpratap Boparai, managing director of new entity Skoda Auto Volkswagen India, told Reuters ahead of India's biennial auto show that begins in New Delhi this week.
However since both Skoda and Volkswagen have already made huge investments in development of technologies that are able to meet the strict emission norms and standards in the developed markets, which are typically much more stringent than Indian regulations on emissions, that makes the company’s cars over engineered and more costly for the Indian market.
A significant part of the new strategy of Skoda in India will be dependent on the type of technologies that are brought in by the rivals and the price points set by them for sale, Boparai said.
The new strategy for the Indian market that is to be implemented by Skoda and Volkswagen, the companies will make use of a modular platform to build cars, enhance the percentage of local sourcing of components to 95 per cent in order to reduce costs of importing and design cars that suit locals demands and needs. The companies also plan to export India made cars.
A family sport utility vehicle (SUV) was the first vehicle under the new Skoda strategy which was previewed this week by the company and one that the company expects to launch in the Indian market next year.
The target of the company is to increase the sale o fits cars in India to about 100,000 units a year by 2025. The company sold only 15,000 cars in 2019. The company also plans to grow itrs network of outlets from the current number of 85 to about 200 by 2023.