Volkswagen reassesses plans for a small car

Volkswagen AG, the world’s fourth largest automobile manufacturer, is in the process of reassessing its small car plan for India. The company is carefully evaluating the project due to a feasibility study holding out little promise on the cost front. It is also considering the frequent changes at the top management level.

The German company, in fact, has even asked some people – consultants and not full-time employees – who were hired to key jobs to “take a break”.

Mentioned in sify.com, a source told DNA Money that “VW’s focus on India could have been impacted, thanks to the recent spate of changes at the top management level. This, in turn, is likely to affect the overall direction of the project to a large extent.”

In January 2008, the VW board is likely to debate on the matter.

Last year, Volkswagen (maker of quality Volkswagen Golf distributor rotor) has announced its plans to launch a derivative of the Polo, which will be built in a new plant in Chakan, near Pune, and be rolled out within 2009. The company planned for an initial capacity of more than 1 lakh vehicles.

Now, the German automaker faces the challenge to benchmark the cost of the Polo with the Suzuki Swift. It has been barely achieved this target yet so the board is considering whether to bring in another model or stay with the original plan, but work harder at costs.

Other than the two options, the board holds another way through, which is to price the car on par with C-segment offerings, just like the Accent or Ikon. That would mean the company will have to push the rollout further to 2010.

The source said VW can do well to take a leaf out of the Japanese and Koreans, which are focused aggressively on localization. “Suzuki has been around for over two decades and has been working relentlessly on productivity and costs, while still remaining profitable. It is not going to be easy for a new entrant to use the Swift as the basis for costs.”

Basically, this issue ends up Volkswagen deciding whether it would be better to bring bigger car to India or just work harder on the Polo to bring costs down to more reasonable and realistic levels.

Volkswagen is one of the last multinationals that entered India since the time gates were opened to foreign investments in the early 1990s. Since then, the German automaker did well in China, but just until it lost market shares to General Motors.