NEWS

Volkswagen closes two India sales offices to reduce cost

Thursday, Feb 12, 2015

Volkswagen is tightening its sales and marketing operations in India to cut cost as local sales remain muted. The auto maker has closed its regional sales offices in Delhi and Bengaluru, and is focusing on exports to utilise capacity.

Wolfsburg, Germany-based Volkswagen entered the Indian market in 2007 and started local production in 2009. It has capacity to produce 1.3 lakh cars a year, or more than 10,800 a month, at its plant in Pune, but makes fewer vehicles. Since the start of the current fiscal year in April, it manufactured close to 89,000 cars through January, at an average of 8,900 a month. More than 60 per cent of these vehicles are exported.

It started the regional offices - in Delhi for north and east India and in Bengaluru for south - to streamline marketing and sales functions after facing much flak from customers over the quality of service and supply of spares. Volkswagen has now closed these offices and merged them with its national sales company (NSC) that operates from the local head office in Mumbai, company sources said.

The decision was made purely on "operational basis and is only related to the field forces" of Volkswagen and unit Audi, said Thierry Lespiaucq, managing director of Volkswagen Group Sales India. These functions will now be centrally coordinated, he told ET.

Some employees of the regional offices have moved to Mumbai while a few others have been asked to operate from home, the sources said. "They have been given an option to either shift to Mumbai or work from home based on criticality and seniority of profile, though sales operations in the automotive industry require more of a field job to generate volumes and coordination with the dealers across the network," one of them said.

Tough market conditions in India are forcing auto makers to redefine their strategies to maintain sales, said Amit Kaushik, principal analyst at consultancy firm IHS Automotive. "These kind of consolidations generally help firms save on operational expenses and potentially pass on more benefits to customers," in the form of discounts and freebies, he said.

Volkswagen, Europe's largest carmaker by volume, aims to becoming the world biggest by 2018, surpassing rivals Toyota Motor and General Motors. Despite the current weak market conditions in India, it views the country as a critical market to achieve this target. "Experts believe that India will emerge as one of the world's largest automobile markets by the end of this decade. In light of this, India plays a significant role in the Volkswagen Group's global growth strategy," Lespiaucq said.

To keep its operations running at maximum efficiency even as it waits for a recovery in India, the company is increasing exports. Its shipment from India rose more than two-and-half times to 57,183 units in the first 10 months of this fiscal year, making it the fifth largest auto exporter from India. On the contrary, domestic sales declined 19 per cent to 36,588 units in the same period. These figures include its stock at the beginning of the year.

Lespiaucq said the company would increase the use of locally made components in its vehicles and launch new models. Using more locally sourced components would allow the auto maker cut cost and keep prices more competitive in India's price-sensitive market. New launches could help drive sales, as analysts blame its aging and limited portfolio as one of the reasons for weak sales. New models have helped companies like Maruti SuzukiBSE 2.27 %, Hyundai Motor and Honda Motor post healthy sales growth in an otherwise weak market.

When Volkswagen entered India, it had a dream run - it clinched a 4.5 per cent market share within three years of starting operations. But then its failure to bring in new models kept buyers away.

It plans to launch new models and some innovate cars like a compact sedan based in its Vento platform. "The Indian automotive market has undergone some structural changes over the last two years. The compact SUV and compact saloon segments in particular have emerged as fastest growing segments. Volkswagen is contemplating on models in these segments but no decisions have been taken so far," Lespiaucq said.

The company also plans to open a regional centre for parts in Bengaluru and a training academy in Delhi.

 

Source : http://economictimes.indiatimes.com/

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