Dreams are strange. One can dream, plan for the dream, live the dream, or live for the dream for many years. And yet, it just needs a small jolt to wake up someone from a dream.

The present slowdown and the experiences of the last three years have been wake up calls for many OEMs. Many of them have castrated fine-tuned their India plans and aspirations, deciding to take their foot off the pedal.

Some of them have done so when the opposite was needed.

Till a few years back, all OEMs looked at India as the kind of land you walked into when you entered the cupboard in Narnia. It was fairy-tale beautiful and offered a double digit CAGR potential. A seemingly docile Japanese small car manufacturer, who seemed all ready to get trampled over by the collective might of the global auto industry, ruled the country.

Every OEM quickly drew up plans to capture a 10%-20% share of the market. Often the process involved local executives building castles in the air and selling them to expats who sold it upwards to eager senior management all too willing to sign on the dotted line. The frustrations of the triad markets and the live example of a booming China worked well to convince global carmakers that selling a few hundred-thousand units in India every year would be child’s play.

It was a nightmare for the analysts as the sum total of these OEM market share aspirations was 280%.

Something had to give.

Shattered Dreams

Now we are not saying that India is not promising. It is, certainly, except the last year-and-a-half has been painful for the industry. And that has been a sort of wake-up call for the industry. Several carmakers have bitten the bullet and the general tone is more measured. Some India heads are now openly admitting failure and scaling down their aspirations.

Mahesh Kodumudi, President and Managing Director of Volkswagen Group India and responsible for Volkswagen, Audi and Skoda brands in the country, admitted to the Times of India that “Volkswagen group has scaled down its India market share target to 7-8% by 2018 against the 20% projected earlier in the wake of poor sales and rising competition.”

He further told the news daily that “The environment in India is ‘challenging’ and it is a struggle to find the right product and right cost structures to make a deep cut.”

The cut in market share target is a tacit admission of how bad things have turned out for some global carmakers. It is also an indication that some OEMs want to clamp down and introspect at this point in time rather than call more Autobots from outer space.

Volkswagen Group’s Problems

The Volkswagen group sure is following this strategy. Till 2011 the group hoped to grab 20% share of the Indian market in 2018. This would have been done through a product onslaught, heavily shouldered by the Up! small car and its Skoda badged sibling, the Citigo.

In a market then forecasted to cross five million units in 2018, selling more than a million cars with three brands, even with the Up!, was optimism squared. Deep inside, VW knew it too. Its formidable global engineering had developed hundreds of products till date but none as basic as an Alto, the top-selling car in India.


Volkswagen 2009-Today

Now, automotive research and engineering is an experience driven thing. Engineers with hundreds of years of collective experience between them of developing cars targeted at the semi-premium end of the market, cannot take a deep breath and get down to make cars with paper mache bumpers.

It is the same reason why a Tata engineer would be at deep sea in the Bentley design team.

This was perhaps the reason why Volkswagen needed Suzuki more than the other way around.

Volkswagen also faced internal turmoil on the brand issue.

You see, when things were different and the brand had no plans of entering the Indian market, sister brand Skoda had quietly done so. Quite atrociously, the budget European brand had managed to plant itself right at the top of Indian semi-premium pecking order. That left little space upwards (Audi) or downwards (heck no!) for Volkswagen to squeeze in.

In a way, Volkswagen was in the same dilemma that Coke faced with Thumps Up.

What resulted eventually from this brand confusion was Volkswagen targeting the mass market and leaving Skoda to fend for itself, throttling its product supply.

The result was Volkswagen launching the Polo and then the Vento, simultaneously including India as a big production base for the Up! small car. However, the brand confusion and the content on the cars meant that the Polo and Vento were priced significantly higher than the competition.

Still, the experiment succeeded for a little more than a year as sales rocked. Waiting times for the Polo stretched six months in many cases and dealers started strutting like celebrities.

However, once the fashionistas had done their job, the value seekers found it hard to digest the Volkswagen range. Sales started declining even as the overall market was yet to start its fall.

Meanwhile the initial set of customers had woeful experiences of Volkswagen dealers. Being fashionistas, some of them promptly went to public forums to air their grievances. It didn’t help that sister brand Skoda had itself gained quite a reputation for its quality issues, high cost of servicing & repairs and dealer indifference.

Much as it tried, Volkswagen has found shrugging off this reputation difficult. Often reputations are like urban legends. They are formed quickly but die slowly.

Battling on many fronts simultaneously, Volkswagen has decided to clamps down the hatches and introspect. This introspection should be followed by identifying and addressing the key issues, and then eventually positioning the brand as a semi-premium one.

Bye-bye market share dreams then.

What that means is that the Up! is axed for the time being (without the Up!, the Citigo automatically dies) and Volkswagen won’t dip below the Polo in the Indian market. Meanwhile, Suzuki has walked away from the narthex and Volkswagen is talking an 8% share of the market in 2018 for the group.

That may still be ambitious considering the group has given up on the Up! for now. In fact the product pipeline looks quite weak for now. Quoting from media reports, the next couple of years will see brand Volkswagen launching the sub-four meter Vento variant, a small SUV based on the Taigun concept and some serious brand builders like the new Passat sedan. There might be some halo products sprinkled here and there but that’s about it.

Somewhere further down the line, there would be the next generations of the Polo and Vento as well but Volkswagen is not committing, not at least in public domain, on anything below the Polo.

That to us is a brand firm on withdrawing from the rat race and moving to the hills.

Skoda – Lost in transition

What is Skoda is a big question for the customer and an even bigger one for the management. Many years back, the brand was successfully positioned as a semi-premium brand with just one product to do most of its bidding. The first generation Octavia built a reputation for itself and quickly became the vehicle of choice for real estate agents.

However, over time, there was little coming from the brand. The Laura replaced the Octavia; the brand added the Superb on top of it and the Yeti SUV alongside it. However, efforts at mass-market products like the Fabia were woefully short of customer expectations. Intoxicated by the brand’s semi-premium positioning, the Fabia was positioned as a premium-premium hatchback.

The category did not exist in the market.

Skoda did reduce the prices significantly later on in the Fabia’s life but the damage had been done. The Fabia never recovered and Skoda killed it mid-life.

Skoda 2009-Today

Like Volkswagen, and even more, Skoda developed quite a reputation for its after-sales service. Customers had horror stories to share and the brand failed miserably in matching its semi-premium feel and solid built of cars to customer experience.

But more than anything else, Volkswagen itself killed Skoda. The brand’s global range appears woefully thin so the Indian operations have little to choose and pick from the global portfolio. The future product line-up in India includes facelifts and replacements of the current range, a seven-seater SUV and maybe the Skoda Polar, the concept twin of the VW Taigun.

To expect a brand to perform while throttling the product supply is a mischievous strategy at best and Volkswagen is already casting serious doubts on Skoda’s future in India.

Mahesh Kodumudi, speaking to Times of India admitted that “We are re-aligning our Skoda strategy… we are looking at it.” While speaking to the daily, Kodumudi indicated that Skoda may be making losses with its products in India and it may not make sense for Skoda to be a mainstream brand. Maintaining Skoda as semi-premium may be the right strategy.

So the Volkswagen group in India now reads as two semi-premium brands, one luxury brand, one super-luxury brand and three supersports brands. If we ever needed a loud reminder that India is a poor country, this is it.

And that 8% share of the market may be more elusive than it seems.

Fiat – Cutting off cylinders when the turbo should kick-in

Fiat has had a problematic past with little more than learning to show for the last five years. The partnership with Tata Motors did more damage than good to the Italian manufacturer. Since the separation, Fiat has been slowly rebuilding its operations in India. Monthly sales are still less than 1000 units but significantly, they have doubled on a year-on-year basis.

It would be logical that Fiat would spend the next few quarters nursing its Indian operations back to life. An optimistic carmaker would have used the ‘opportunity’ to launch a few new products in the market. To its credit, Fiat did draw up plans to launch the Jeep brand in India and a host of facelifted products to boost the Fiat brand in the country.

Fiat 2009-Today

But then came the recession and the company did not find the environment conducive to launch the Jeep brand. Market whispers also pointed that there were pricing issues with Jeep and the company would need time to work them out.

Come May 2014 and Mike Manley, Fiat’s VP of sales has indicated that the only significant products over the next three years would be facelifts and replacements of the Punto and Linea.

And in Fiat’s Alice in Wonderland, they plan to sell 130000 units per year in 2018. All of them would be coming from the Punto & Linea and some product remixes like the Avventura.

There would also be some products that are little more than image building exercises –everything with an Abarth badge.

Umm…is that all?

No, there is Jeep too. Fiat plans to launch 3-4 models (depending on which public document we refer to) of Jeep. These would include the Wrangler, Cherokee and a C-segment SUV. Surprisingly, Fiat plans to locally assemble the Cherokee and C-SUV but not the Wrangler, indicating a semi-premium pricing of products much lower than the German luxury zone.

But then Jeep is no Mahindra and anything with the vertically slatted grille would be priced at a significant premium to the Toyota Fortuner, putting a big question mark on Fiat’s volume forecast.

Surprisingly, Fiat, the European small car specialist, has no plans of bringing anything below the Punto in the near future.

Toyota – Surprising Indifference

Compared to Volkswagen, Skoda and Fiat, Toyota is an altogether different story The brand has turned to gold anything that it has touched till date. From the boxy Qualis to the overpriced, segment-definer Innova MPV, Toyota has succeeded with nearly every product in the Indian market.

Unlike the other three brands in this analysis, Toyota is the gold standard in the industry, both for initial quality and after sales service. Also, not much seems to have gone wrong with Toyota’s market success. The Innova is still a hot seller and had its best month in March 2013 when dispatches crossed 8000 units. This helped propel the brand’s dispatches in the month to beyond 17600 units, making it the best month yet for Toyota.

Toyota 2009-Today

The Fortuner is still the best bet in the premium SUV category and waiting lists still stay for some of the variants. The Fortuner’s dispatches regularly cross 1500 units in a month and the SUV outsells the entire competition combined.

So the only products not shifting satisfactorily in the Toyota stable is the Etios range. Both the Etios sedan and Liva hatch sold 4184 units in May 2014. April dispatches were only 3016 units. This is a far cry from of peak volumes of nearly 10000 units in December 2011.

But is that reason enough for Toyota to throw in the towel? The company recently announced that it would not compete in the small car segment and would focus on larger cars, utility vehicles and SUVs. Effectively, the Liva hatchback would be the smallest Toyota for India. The company’s announcement has also put a big question mark on successor generations of the Etios / Liva being developed.

That is quite surprising considering the company is the market leader in the Japanese small car market and has the formidable Daihatsu brand specializing in small cars. How difficult would it be for a formidable manufacturer like Toyota to compete with Suzuki in the Indian small car space, considering they lead comfortably in the Japanese small car market, the ASEAN market and nearly every developing market that matters.

With big brands deciding to take it easy for the next few years, the field is slightly more open for those who have a defined plan and greater commitment. In another analysis in the future, we will look at how 2016-17 would be a good time for someone with the right product to enter the Indian market.

So open would be the field.



  1. FIAT : I’m quite skeptical of how FIAT works.

    It looks like Nagesh has somehow kept the Italians in the illusion that he is working. What to they know about the Indian ‘Market’. But IMHO their launches and decisions show they just want to pretend to be working.

    Honesly, when they launched the Avventura, what stopped them from mating the turbo kit to the 1.4L FIRE engine (what the T-Jet actually is) !!?

    I have a Linea. When I see those forums peddling blind fanboyism, it really raises doubts if the forums “Moderators” are in any way “Benefitted” for creating such an space where people, just to be among an auto-group, are blind ‘fans’ of FIAT. Honestly, some of those idiots don’t even know where the oil is put in the engine, or what is a Lower Arm, or even the basic understanding of handling characteristics.

    TOYOTA : That indifference is going to change.

    They know their Innova is now widely considered underpowered & overpriced.

    Hence I guess they’re working on a VGT (or ‘Variable Nozzle Turbo’ in Toyota lingo) AND a slightly longer Innova !

    No more growling to go >100kmph on highways! Good!
    The present 3rd row is “Decent”, the next one will be Luxurious & spacious even. Great!

    They’ve moved the brand to a slightly premium segment, and IMO the next one will soon be launched (Mid 2015) with only a small namesake Price Hike.

  2. It would seem the EuroAmerican car firms are going to perpetually struggle in this market, even if they survive here long-term, which is doubtful for a few of them!

    Their cars have USPs (depth of engineering, design and brand identity/heritage, higher quality of build and suspensions etc) that are near-irrelevant to the vast vast majority of Indian buyers who, as a consequence, cannot see the ‘value’ in their ‘pricing’, even if as with Fiat or Ford this last is NOT premium, indeed often the opposite:

    (a) don’t give a jalebi for brand identity/history/national origin/narratives. How is VW to compete when its ‘German origins’ are if anything a liability, how is Chevy to communicate a reason to want to buy one of their cars if their American identity is one too, same for Fiat with its Italian roots?

    (b) are inordinately herding-biased in 3 seperate senses of the term. Firstly, just a basic cognitive bias, which in India means 2 of the earliest movers have a huge super-advantage in sales-pre-dispositions (MS and HY). Secondly, herding based on social relationships/conformity, very very high in India in all spheres, and acute in the auto market, here too: super-advantage MS and HY. Finally, herding based on feedback loops that make even selfish, autonomous, open-minded, well-informed customers flock in favour of the dominant incumbent brands (resale value, high scale economies and therefore trust in dealers and ASS).

    Such firms would be best advised to play the Indian market VERY indirectly, then, as a base for exports (Renault, Nissan, Ford, VW) and/or as engine and technology suppliers for the dominant East Asian and Indian brands/firms (Fiat and Magnetti Marelli.) A frontal, ‘optimistic’, ‘aggressive’ approach will surely…fail, maybe fail better, but fail it will, IMO!

    Also, as ‘niche’ (eg., sporty fast yet affordable cars, or even ‘retro’ cars?) car makers, and/or ‘premium/luxury’ ones such as FCA might be planning to do with Jeep. i.e., as the car-parallel to the Royal Enfields or Yamaha-s or Bajaj Pulsars/KTMs.


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