People who can afford cars are now more willing to buy them: Volkswagen's Ashish Gupta

The brand director of Volkswagen Passenger Cars India, speaks with Campaign India about the Taigun, the electric vehicles segment, why the brand will not be following Ford and exiting the market, and more...

Nov 08, 2021 02:36:00 AM | Article | Raahil Chopra

Volkswagen India recently announced the launch of the Taigun in India, which according to Ashish Gupta, brand director, Volkswagen Passenger Cars India, has exceeded all expectations and the production units for this year is almost sold out.
 
In a conversation with Campaign India, Gupta also explains why the German auto manufacturer isn’t in hurry to join the electric vehicle bandwagon in India, how rising fuel prices in the country aren’t currently affecting the user, the trend of premiumisation, the exit of Ford (speculation around Volkswagen following it) and more…
 
Edited excerpts:
 
The Taigun has been launched in the competitive mini-SUV space - what's been the response?
 
The response has been beyond what we had planned for. By the time we launched the car, we had more than 12,000 pre-bookings. At the time of the pre-booking we had not released the prices or variant details and post the reveal, we have converted 70% of those into confirmed orders.
 
If I look at the overall momentum we are running at a rate of close to 250 bookings (including conversions from pre-bookings) every day. This is overwhelming for us and we are almost sold out for the production for this year and will be soon announcing that fresh bookings will be only available next year.

We are seeing that customers who loved the car after seeing it love it even more after a test driving. Currently, we are running a test-drive rate of nearly 750 per day. The showroom walk-ins have increased almost 6-7 times.
 
The car has been launched only in petrol options. There are a few players in the category that have also gone without a diesel when launching a new vehicle. Why is this happening?
 
This is a call we took almost two or three years ago when we started working on the India 2.0 project. One of the major reasons was that after shifting to BS6, and the upcoming norms coming up in 2023, diesel becomes a much less attractive proposition in terms of developmental costs which affects the pricing of the car. So, we didn’t see the value of this for the customers.
 
Parallelly, we went with a completely TSI (turbocharged engine) portfolio rather than the conventional MPI which is seeing great traction.
 
Would the Taigun now be the flagship vehicle for Volkswagen in India? Which are the other vehicles in your portfolio?
 
For us, all the models are like children, and so it’s difficult to pick one. Having said that, from a volume point-of-view, yes, the Taigun would be the flagship.
 
We have the Polo, Vento, Taigun and the T-Roc in India. We will soon have a global sedan early next year which will round up the portfolio.
 
The rise of EVs is interesting. Do you think that the rising fuel prices will accelerate the demand for them in the country?
 
It’s a difficult proposition right now. Globally, Volkswagen is the leader in terms of electrification in the mass segment. The group has committed to invest close to 33 billion euros over the next four or five years in terms of electrification. Globally, that is the direction the brand is taking.
 
In the Indian market, electric vehicles currently constitute less than 0.65% of the entire market. Having said that, we are seeing the rate doubling and traction with some of the models that have been launched (by other automobile manufacturers).
 
The mass electrification will only happen when the EV market constitutes 5% of the total vehicle sales and that will happen only by the second half of this decade as per our analysis. That is the kind of time we are looking at to evaluate what kind of products to launch in. 
 
The amount of investment and infrastructure setup for a new production capacity for electrical vehicles, the battery production capacity and the supply chains, will require that kind of time.
 
The general perception and conversations suggest that the market might be ready before the three to four years you’re suggesting. Would that make it late for Volkswagen to enter the space in India?
 
Three to four years is a short term for the automobile industry. The typical product development cycles are five to seven years. You have to see the electrification story from a wider perspective. When we talk about electrification, it’s not only dependent on fuel prices. It’s also supposed to be better for the environment. We have to look at the complete chain of electrification, including where the energy for electrification is coming from. As long as it’s not helping in reducing the carbon footprint, there is not much of a point.
 
We as a brand see electrification as a complete package in terms of how it fits into our global strategy of ‘way to zero’.
 
Considering India has been a price-sensitive market, do you think the customer could be lured to reduce costs rather than look at the bigger environment picture and move to EVs?
 
Yes, that could be a situation. Over the next three to four years, battery technology, infrastructure setup, will change. With volumes going up, the cost of infrastructure should go down. The Government is also taking a lot of measures in bringing out policies that support electrification. Once all of these things come together, it will gather pace.
 
Premiumisation in the auto industry - are we seeing more first-time car purchasers enter the category through more expensive purchases?
 
That’s a trend we are seeing too. The pick rate for the premium or higher priced models is much more than the entry variants. Over the last one and a half years, we are seeing a shift in consumer behaviour. The people who can afford cars are now more willing to buy them since the need for personal mobility has increased. People are relying less on public transport because of the safety aspect during the pandemic. The propensity to spend has also increased because people believe it’s time to spend now as they’re uncertain about the future.
 
What is also interesting is that the option of premium used cars has also increased. We have a presence pan-India for pre-owned cars and have tripled our volume from 2019 in terms of the numbers of cars selling. In 2019 we sold around 4,000 cars and it went up to 10,000 and this year we are on track to reach 20,000.
 
Another perception floating is that Indian, Japanese and South Korean brands offer value for money in terms of service and purchase too while the others don't. Would you agree with that and what has Volkswagen done to change this perception?
 
This has been a focus area for us. If you look at the cost of ownership, we have taken a lot of measures to bring it in line with customer expectations. First of all, we introduced the ‘Forever Care’ package where we offer a four-year warranty, roadside assistance, and three free services that are standard with every product of ours. This means that it's four years of hassle-free ownership. This brings down the ownership cost by 10-15%. Then we reduced the prices of spare parts, engine oils, etc. We introduced loyalty products too where we have maintenance costs of only around Rs 5,500 a year and its better than competitors.
 
In terms of communicating it to the customer, we have started a campaign where we have used digital, print, dealers, and social media. It’s titled ‘You call it going beyond, we call it service’. It’s a major push from our side and we have invested massively to get it across to the consumers. It’s been well received and customers have also written to us, saying that they are feeling the difference when they visit our dealers. We have a service cost calculator on our website and are extremely transparent about these costs.
 
Ford had a similar campaign on air on television where they were promoting the cost of ownership. And now they are exiting the Indian market which has rung a few alarm bells around the market. Have there been any concerns from the Volkswagen consumer as well?
 
The only concerns I have had are from the media. Three years ago we invested a billion euros in India. We have just launched the Taigun and will be launching a sedan next year. We’ll also be launching the revamped Tiguan. That’s a clear sign of commitment to the Indian market.
 
What are the challenges for the auto industry after the last year? 
 
The effect was very apparent during the lockdown where the sales nosedived. But the consumer sentiment has revived after every wave. From June-July 2021 onwards, the industry has picked up and is almost 50-55% higher than the same period from last year.
 
The only constraint we see is the availability of the components and the raw material prices which have gone through the roof.  
 
What about rising fuel prices. Given the noise that it’s generating now, it has to be a concern?
 
It will have an effect somewhere down the line. But you have to understand consumer sentiment. The consumer rationalises these price changes. From the data I have, the average running of a car has gone down by around 12,000-13,000 kilometres a year, to around 6,000 a year as customers aren’t travelling much. So, for a customer, the bill has remained the same yearly.