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Old 30th December 2014, 13:08   #1
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Default Steep decline in profits filed by Volkswagen India in FY14

In our earlier article we mentioned how the Volkswagen Group struggled to find the right product and the right cost structure in India. Thus, it lowered its market share target from 20% to 7-8% by 2018. The Volkswagen Group in India also includes Skoda, Audi, Porsche, Bentley and Lamborghini.

The company saw a steep decline of net profit in FY14 at Rs. 29.5 crores which is 53% down compared to FY13. An article by Financial Express indicates that the company filed sales (with the Registrar Of Companies) worth Rs. 8,062 crores in the current fiscal which is down by 8.2%. However, the star performer the Volkswagen Group seems to be Audi, which witnessed a sales growth by 46% over the last 3 years. Audi sold 9,540 cars in FY14 in comparison to 6,547 in FY12.

As per its January-September 2014 interim report, Volkswagen India delivered merely 50,667 units in the reporting period in comparison to 70,668 units in previous year. This 28.3% decline was blamed on the persistent high inflation in India which eased over the course of the year. The Indian automobile market recovered since May 2014 when the economy saw an upward trend after the new government took office as well as the reduction in excise duty rates extension till December 31, 2014, among other things.

As per the company's report, the Polo, Vento, Skoda Rapid and the Audi Q3 have been the most sought-after Group models.

Last edited by GTO : 2nd January 2015 at 15:16. Reason: Adding link
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Old 30th December 2014, 13:27   #2
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Default Re: Steep decline in profits filed by Volkswagen India in FY14

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Originally Posted by S2!!! View Post
In our earlier article we mentioned how the Volkswagen Group struggled to find the right product and the right cost structure in India. Thus, it lowered its market share target from 20% to 7-8% by 2018. The Volkswagen Group in India also includes Skoda, Audi, Porsche, Bentley and Lamborghini.


As per the company's report, the Polo, Vento, Skoda Rapid and the Audi Q3 have been the most sought-after Group models.
For a company that has some of the most comprehensive cars in respective segments, VAG ought to develop it's brands in a much more faster rate. For example the cross badging of products can be avoided, which will help them focus on one particular offering per segment. For example, the Rapid costs lesser than the Vento, and each sale of a Rapid becomes a loss (I may be wrong here!). They have a strong prospect in the form of Polo which has all the features to blow the Swift and the i20 away. Probably the dealership nightmares also play a huge role in this. Also, we had previously seen the lack of customer support from Exclusive Motors in the case of Exotic cars. Also the fact that VAG companies have a very small dealership network is also a big minus at their place. If all VAG companies get good dealerships like this: Jetta Breakdown: Exceptional experience with VW Service, then they have a good chance of reversing their fortune.

Skoda's attitude towards India must change. Like in the case of the Octavia, there are huge waiting periods due to lack of proper production. Looks like they are least interested in bringing the imported kits to India.

Thanks,

Achyuth

Last edited by Achyuth Vaibhav : 30th December 2014 at 13:35.
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Old 30th December 2014, 17:28   #3
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Default Re: Steep decline in profits filed by Volkswagen India in FY14

So true, Audi is the only shining star in the Indian VAG crown. Last year, it was the best-selling luxury brand here.

Old cars, lousy dealers and no new investment from headquarters = Both their mass market brands are in the doldrums. The only fact they can take solace in is that most other global car manufacturers are also suffering (GM, Ford, Renault-Nissan, Fiat). It's only Honda that turned its fortunes around with the 1.5L diesel & more products in the mass market.

The volumes are still there in the Indian space. 6 of the last 7 months have seen sales of over 2 lakh units. But it all boils down to an aggressive product strategy, backed by an aggressive sales division. Ironically, this is the exact reason behind Audi's success, albeit VW & Skoda don't get it.
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Old 30th December 2014, 17:44   #4
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Default Re: Steep decline in profits filed by Volkswagen India in FY14

Even the lowered 8% market share target VW has set for itself is ridiculous and not even close to achievable given the current situation. All VW AG has done is fiddle around with headlamps, engines and head units but essentially they are running with the same portfolio they had 5 years ago, with some additions like the Octavia that have at best got a lukewarm response.

For a company with 3 strong brands they need to pull their act together and come up with a decent strategy otherwise they will continue to sink.
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Old 30th December 2014, 18:25   #5
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Default Re: Steep decline in profits filed by Volkswagen India in FY14

Since different companies in the group (e.g. Audi vs. VW) has shown different fortunes, maybe the root cause lies not in the products themselves, but something that is an attribute of the individual brands. I think the secret sauce is quality of leadership and management. Truth be told, Michael Perschke, the erstwhile CEO of Audi India did a brilliant job in both product selection, "reading" is customers' wants and needs and leading from the front. He was literally everywhere- twitter, FB, press, Audi drive events....."leading from the front". Alas, the same can't be said of the other CEOs. Let's wait and watch for another year or so...without his presence, if Audi India falls behind in the stakes, my hypothesis may stand proven.
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Old 30th December 2014, 20:48   #6
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Default Re: Steep decline in profits filed by Volkswagen India in FY14

Both VW and Skoda are incredibly slow IMHO to react to the market. Its been over a year since they launched the Octavia and they still have a waiting period of 3-4 months which is just plain unacceptable. And then there is this wait for the Jetta facelift. They stopped production a few months before the year ended and in actuality they sold out all the AT cars by october or so and the deliveries of the facelift are expected to start only by March or so. The Dealer in Coimbatore told me yesterday that they already have 17 bookings for it. I can only imagine how many bookings they have in the metro cities. Its again going to go the Octavia way with long waiting periods. They know there is a demand for these particular cars and they still have not been able to match the requirements. Even the Vento DSG has a wait of over a month. I hope they wake up soon because even with their bad rep for ASS they still have demand and are not able to capitalize.
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Old 30th December 2014, 22:32   #7
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Default Re: Steep decline in profits filed by Volkswagen India in FY14

So the cars being the most safest, most fastest from 0-60 and most well built are not selling in our great country. Before we take out knives for the germans lets not forget that across the border in China, they are on the top. The same kind of equally competitive environment that we have. VW India despite having the lowest market share is profitable. The environment in the factory is not that gloomy. I visited the factory couple of weeks back and they are churning out cars all day. Just that many of them are LHS. In a country where the highest selling sedan and the highest selling hatch are ZERO NCAP, things cannot get better. They have compromised on profits but the car is safe and well built as ever. Their core values are still intact. Now some may say " What core value?" what About VW ASS" ? Well if that was really the reason for this gloom, then Dacia(yeah right) wont sell like pan cakes.

Last edited by GTO : 2nd January 2015 at 15:17. Reason: Typo
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Old 30th December 2014, 23:07   #8
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Default Re: Steep decline in profits filed by Volkswagen India in FY14

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Originally Posted by S2!!! View Post
In our earlier article we mentioned how the Volkswagen Group struggled to find the right product and the right cost structure in India. Thus, it lowered its market share target from 20% to 7-8% by 2018.
With their present product line up it is not surprising to see Volkswagen Group reducing their market target. Except for Audi I don't think any new models have been introduced to make people be excited. I am not considering Vento and Rapid launched recently as new products (except for DSG version). Though both the cars are good, it has been few years since they have been launched and looks dated now. The sales number also shows people apathy towards these products. The harsh truth is, they have no suitable product in mass market right now where they can aim to capture market. They need to revisit the drawing board for new strategy.
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Old 31st December 2014, 11:56   #9
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Default Re: Steep decline in profits filed by Volkswagen India in FY14

One of the biggest reasons for their sales drop is because of negative word of mouth.

I'm sure many of us spend hours convincing friends and family members not to buy a VW because of the horror stories. One great service experience cannot make up for the many many bad experiences.

There are other brands too selling old outdated cars with just a headlamp refresh who are able to sell more. This is probably because the consumer feels comfortable buying a car where he feels the company wont cheat him.

It's truly sad that a company like VW who make some incredibly good cars have got arrogant and allowed their customers to suffer.
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Old 31st December 2014, 15:49   #10
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Audi India's reaction to the needs of the market has been just plain splendid. Their pricing so far has been just plain superb.

For a consumer its a relativity based decision. Audi provides the cheapest car in all segments with the most amount of goodies. Even though Audi's after sales may not be as good as BMW's , Audi is far ahead of competition when it comes to the actual product and value for money. Off late they've had to increase prices of the outdated A4 unnecessarily to make space for the A3 but I do believe once the new A4 comes in, they'll make it worth it.

VW/SKODA on the other hand have the most expensive cars in almost every segment. And they're also the most expensive to maintain compared to their Japanese/Korean competitors. Add to that the numerous horror stories of SKODA After sales, it's been shooing away lot of customers. I ,for one, loved the new SKODA Octavia but have just not been able to convince myself to buy 20L car that used to compete with civic and Corolla not so long ago. Although my main worry has been the after sales of SKODA.

POLO with its 3 pot noisy unrefined motor sounds like a auto riksha at times. I felt with its 3 pot strategy VW was so defiantly ripping customers off for the prices being offered. At least Nissan Micra had the decency to market the 3pot petrol model as one of the cheapest available. VW place themselves as premium right from the word go, yet they refuse to provide a premium engine for the car.

They finally decided to go with 4 cylinder models of polo but couldn't resist overpricing it yet again !

To sum it up - I feel VW has refused to understand the Indian market and mould themselves accordingly. If you price a Passat at the same price as an A4, its not gonna sell anywhere in the world.
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Old 31st December 2014, 16:24   #11
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Default Re: Steep decline in profits filed by Volkswagen India in FY14

I feel they just took the Indian market for granted. Its a highly competitive market and just because VW is German, customers aren't going to dump favorites like Maruti and Hyundai.

Their biggest mistake was to launch the Polo with ordinary engines. The first impression is always a lasting one. With such a huge investment and big bucks budget for India, they really should have launched themselves with a product which the market would take note of. Agreed that the build, fit and finish and depth of engineering stands in their cars over some of their competitors, but when you charge a premium for it, the customer does not give you any extra points for it, its kind of expected.

I test drove the 3 pot petrol Polo recently and it sounded like a tractor. The car itself was so well made and finished, and the suspension was so well sorted and balanced, super slick gear shift as well, but the engine just stood out like a sore thumb and was totally out of place in such a nice car. I can't believe this crude engine is paired with the Polo even today.

Last edited by Santoshbhat : 31st December 2014 at 16:32.
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Old 31st December 2014, 16:32   #12
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Default Re: Steep decline in profits filed by Volkswagen India in FY14

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Originally Posted by Santoshbhat View Post

....3 pot petrol Polo.......The car itself was so well made and finished, and the suspension was so well sorted and balanced, super slick gear shift as well, but the engine just stood out like a sore thumb and was totally out of place in such a nice car.......
Still beats me why they can't offer a slightly detuned (85-90 BHP) 1.2 TSI manual instead of that horrible 3-pot engine. They can still use the higher tune and DSG autobox as the differentiator for the GT TSI.

Last edited by Chetan_Rao : 31st December 2014 at 16:34.
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Old 31st December 2014, 17:48   #13
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Default Re: Steep decline in profits filed by Volkswagen India in FY14

Not surprising at all. The only VAG brand that keeps India up-to-date is Audi. No wonder they are doing extremely well in the luxury space. VW is literally running the show with just one car (and its booted version). The recent updates to the Polo and Vento are great, but the changes came in late by at least a couple of years. And with Skoda I guess they are keeping India as a pilot project on how to kill a brand. They have a competent product in the Octavia, but even for that one model they are not able to meet the demand.

If they don’t come up with some aggressive plans to refresh the VW brand, I think Audi will be their lone survivor in India.
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Old 31st December 2014, 18:28   #14
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I understand that Volkswagen needs to rethink strategy but I do not want them to go the Honda way. On the verge of targeting masses I do not want VW group to replicate Maruti or Honda where mileage becomes first priority and build quality becomes least. I love VW for what they are and I want them to come up with a strategy that appeals to people who can spend the amount for hatch instead of compact sedans or rather who prefer a proper hatch and not a compact sedan. For example I20 which costs even higher than some of compact sedans sells at good volumes.

Last edited by GTO : 2nd January 2015 at 15:20. Reason: Typos
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Old 31st December 2014, 20:19   #15
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Default Re: Steep decline in profits filed by Volkswagen India in FY14

This proves that they are digging their own grave day by day. In order to make things right they have a lot of things to do here in India. Firstly they are going to launch the Jetta in coming months. Now the rumour is that they might increase the price of the car by 1L. If they are to attract new buyers and keep the interest in their new cars alive they should no keep on increasing the price of their cars this way. The new Jetta is nothing but a mid life refresh. Not much is actually new in that car that will command 1L price appreciation over the current model which itself was a bit overpriced in my opinion.

Think about Polo now. The 1.2L 3 Cylinder petrol trendline starts at 4.99L ex-showroom. That's costlier than i20/Swift base model. In order to get more market share they cannot demand this price premium over the most successful models in the market.

Their salesmanship/aftersales have remained questionable and the company have not shown any great intent to rectify that. Their portfolio is also getting old now. They should launch models like Tiguan/Taigun etc. to get more volumes as these segments are doing well now. So I think they are not really serious in penetrating the market and giving excuses like poor economical growth,inflation etc. as their reason for underperformance just like they give you excuses when they are not able to repair your car properly or in time.
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