Volkswagen hikes investment in Pune to Rs3,500 crore; plans small car strategy

Mumbai: Volkswagen India has hiked up its budgeted investment for the automobile project in Pune to Rs3500 crore from the originally planned Rs2,500 crore, marking an increase of Rs1,000 crore. According to managing director Joerg Mueller, this would be the single biggest investment by a German firm in India thus far.

The Rs1,000-crore investment in Pune is on account of the company's decision to assemble the Skoda Fabia at the Pune plant. The Skoda Fabia is presently put together at Skoda's Aurangabad facility, and moving production to Pune will allow VW a higher degree of localisation that will result in lower costs.

The Skoda Fabia has already benefited from being a small car, as it qualifies for lower duties of 12 per cent as announced in the Union Budget 2008, for cars smaller than 4 metres, and a diesel engine capacity of 1.3 litres. Announcing its plans to be a larger player in India's small car market, VW will come up with an offering at the Rs5 lakh price point in around 2012. VW plans to make 15,000 units of the Fabia during the first year of production, post which the company will introduce the Polo in around 2010. By 2010, the company is optimistic of having captured a ten per cent market share in India, which my then would have burgeoned to an overall estimate of over 2.5 million units.

Volkswagen is likely to follow a top-down strategy in India, with its product portfolio comprising the likes of the luxury Phaeton,  the middle-segment Jetta, and the compact Fabia. The company plans to use a mix of imported completely built units (CBUs), local assembly of completely knocked down (CKDs) imports, localised manufacturing. It also plans to build a vendor park for its suppliers at its 575-acre campus at Chakan, and is reported to be in the market for a local partner to help construct the facility, which will ensure close geographical proximity to the production facility.

VW also plans to import and retail its flagship people's car, the iconic New Beetle. However, given the duty levy of over 100 per cent, the car's landed cost would come to about Rs8 lakh, and it wouldn't quite be a people's car in the Indian market. However, the company is optimistic as far as an annual sales target of of a hundred units goes, and is consequently planning an expansion of its dealer network as well.