Team-BHP (https://www.team-bhp.com/forum/)

-   The Indian Car Scene (https://www.team-bhp.com/forum/indian-car-scene/)

-   -   VW India builds 111,444 cars in 2014 - 60% exported! (https://www.team-bhp.com/forum/indian-car-scene/159179-vw-india-builds-111-444-cars-2014-60-exported.html)

Volkswagen India announced that it recorded a total production of 111,444 cars in the calendar year 2014 – the highest so far since the inauguration of its production facility in Chakan, Pune in 2009. An astonishing feat considering the total capacity of this plant being 130,000 cars.



The production of 2014 at Volkswagen Pune plant included the Volkswagen Polo, Volkswagen Vento and Skoda Rapid.
With 67,010 number of units, the Vento was the highest produced car of the year followed by 33,547 units of Polo and 10,887 units of Rapid.

The export volumes grew by 308 per cent as compared to 2013 and contributed over 59.8 per cent (66,660 units) of the total production. The other highlights for the manufacturing facility were the start of production of the new Polo and the updated versions of Vento and Rapid this year.

Source: VW Press release

The fact Mr.Kodumudi said that every second car they produce at the plant goes for export says their position in our market. The demand for their cars are drying up in the domestic market and they are using it as an export hub. They better start thinking about the local market strategy or else that day is not far away when all the cars they produce will go to Mexico.

All the loser MNCs sitting on installed local capacity, thousands of employees and flopped Indian strategies are resorting to exports to keep the lights burning. GM recently announced a similar move where it's going to focus on exports.

But seriously? Mexico? It has the same cheap labour as India. Why would you export to Mexico?! It's like exporting a product to China. These exports would hardly be profitable, and here's proof - related thread. Clearly VW Mexico is doing a favour to VW India. Why do I think so? VW's Mexico factory is already the 2nd biggest after VW Germany. They don't need to buy someone else's goods.

Some facts that stand out:

- Almost 50% of production from India going to Mexico.

- More Ventos (67,010) produced than Polos (33,547). A majority of the Polos (IIRC, about 28,000) were sold in India itself. The Vento's local sales however are less than 15,000.

This picture (and cars like the GT TSI / TDI) shows that the VW folk know how to have fun. If only they had a better local strategy. In the market that all the losers complain about, Maruti, Hyundai & Honda have increased their market share.

That could be the reason. Fully utilise the cheap labour costs and produce quality products for export (Jetta for majority of the markets worldwide, and Golf for NA). These two popular models should occupy their complete production capacity. And then import the cheap car (Vento) for local market from India.

And why do we frown upon auto cos who export more than sell in the local market ? ( E.g Ford, Renault-Nissan elsewhere in the forum and GM/VW here ). From a country perspective these cos are typically net foreign exchange earners + they add to local employment. For a group like VW which has significant exposure to the forex market by way of imports under the Audi division, these exports act as a natural hedge. This could also be part of a global capacity rationalisation exercise. For a domestic market that is largely obsessed with Fuel Efficiency and buys pretty much anything that Maruti churns out and we being a free market economy, don't see a big issue in such export strategies.
And "reported" losses in subsidiaries in countries like India which have severe restrictions in currency convertibility and geo political risks need to be taken with a pinch of salt if you know what I mean.

They clearly seem to have a better margin of profit in exports when compared to selling locally. Because if it was the other way round i'm pretty sure they would have concentrated on production of the Jetta and the Octavia. I know these cars are stupidly overpriced for our market but the build quality and fit and finish is something nobody can refute. Companies like Maruti and Hyundai concentrate equally on local sales because they have volumes and a better profit margin.

I personally feel that Maruti and Hyundai have better build, fit and finish in the cars that they export ( strong possibility of me being wrong ). This is purely from logic from the latest zero rating that the Indian Swift received. I doubt if a lot of countries would let the car be sold if it was so badly rated for safety, Hence my assumption that they make better built cars for exports ( May be better Sheet metal quality ).

Keep in mind, the key word is 'Profitable' which VW India still is. Granted that leaves much to be desired.

Also, VW Mexico does not manufacture Polo or Vento. The recent $700MM investment in Mexico seems to be oriented to MQB platform cars, cars like Golf. Mexico also caters for a huge portion of North American VW car demands.

In the current global economy, sharing load across factories across the globe is not really a 'favor' but a strategic and somewhat economical decision. A decision that could be an outcome of a desperate situation, but I admire the company finding a way to keep the flame burning.

This probably might be because of the global strategy that most of the Global MNCs are following these days.

Develop at 1 location, manufacture at few locations, sell around the world.

This saves a lot of investment - R&D, Tooling and Testing cost as all these costs are split up among multiple countries. The drawback is that some countries will get features that they don't like (Eg. Wiper/Indicator stalks inverted)

Following this, VW would have identified India as a major market (which might have gone wrong later) for cars like Polo/Vento and decided to manufacture them here. Then they realized that Mexico or other export countries has more demand for these cars than India and decided to export them (which surely will bring in more money than domestic sales)

Other reason could be that it is cheaper to import in Mexico than to import in India (i might be wrong here). So it might be better to manufacture in India and export to Mexico than to manufacture in Mexico and export to India.

With Nissan, yes. The factory from day 1 was set up for exports and its volumes are h-u-g-e.

Companies like VW, GM, Ford etc. have resorted to exports only because their local strategy didn't work out.

Anyway, both are completely independent. Like Hyundai, you can have a strong local presence and exports. They aren't dependent on each other. The reason I call these companies losers is because they have mass market presence, but just aren't able to sell because of 1 mistake (or a combination of many).

I find that hard to believe.

1. Do you think you can charge a sister concern more $$$ than a regular customer? No ways.

2. If the exports were indeed more lucrative, their profits would go up, not down. In 2014, though their exports increased, VW India's profits fell.

I hope the above part of my post partly answers your question

I would disagree partially with you. It really depends on the country to which the cars are exported. Say, cars exported to the so called developed markets like Europe, USA etc , cars sell at a much higher cost. With minor changes in interior plastics/appearance, the same car fetches much more money compared to local sales. But it depends totally on the company to decide who the profit goes to. Depending on the global strategy the profits might be shared between the manufacturing legal entity/selling legal entity which might also be the reason why VW showed a decreased profit though they exported more cars.

But the cars exported to so called developing markets like SA/Mexico, the profits might be similar or even less. The cars are also stripped down for such countries in some cases.

All this said, its more on market presence than profit for some manufacturers. Eg. more products lined up in a country will give the manufacturer a greater product portfolio. Say 5 cars by Ford vs 9-10 models by Hyundai.:)

My guess is VW sell these vehicles to their parent/developed market branches at transfer pricing which is more or less at cost.

The cars are sold at higher prices abroad than in india. = More profit.

Corporate parents are usually set up in tax light geographies. Minimal profits are reported in the manufacturing and selling geographies, rest goes to the parent.

In the end its VAG that wants profit. not VW India. if VAG gains more by reporting losses in VW india, it will. VW india is a wholly owned subsidiary of VAG, and is not answerable directly to any shareholders. As long as VAG is happy, anything goes.