Martin Winterkorn, the global CEO of Volkswagen, Europe’s number one carmaker, told shareholders at the company’s annual general meeting in May that VW was well on track to meet its ambition of becoming the world’s largest automaker by 2018. What he did not spell out was that the company’s intense fight with Toyota, the incumbent world leader, could well be in a region that neither can call its own: India.
The German and Japanese giants are playing catch up in the market that was not long ago rubbished as a lacklustre, low-margin and low-brow — but has emerged as the world’s fastest growing in recent years. Both are scrambling to make smaller, cheaper, more frugal cars, something they have rarely done before. And the Indian operations of both these firms are so small, and contributes so little to their global turnover, that there is only one way that this can go: up
In 2010, Toyota India sold less than 75,000 cars, a mere 0.9% of its sales worldwide. Even then, it makes and sells its smallest and cheapest car ever, the Etios, in India. So important has India become, that the company did not allow the after-effects of the devastating earthquake and tsunami in Japan in March to hurt its Indian operations for long. In fact, India is the only Toyota subsidiary to resume full production.
“India is a critical market for us and we lay a lot of importance to it,” said Hiroji Onishi, president, Asia-Pacific, Toyota Motor. “Our entry is late in the volume segment in India and our line up is not sufficient in response to the growing demands of the market. But it is a market that cannot be ignored anymore, and we see a larger potential and market here.”
Volkswagen’s has been a similar story. It entered India late and sold only 53,300 cars last year — a mere 0.75% of its global sales. But last year, it chose India as one of its first markets for the Vento, its new sedan made primarily for emerging markets. Group firm Skoda is set to repeat the act with a similar sedan this year. India has become central to VW as well.
“With 55,091 cars sold by Volkswagen Group in India in the first half of 2011, we have already sold more than we did in the whole of last year,” said John Chacko, president and managing director, VW India Pvt Ltd. “During this period we also increased our market share from 2.5% to 4.6%. Globally the VW Group had a market share of 11.4% last year and I see no reason why we should not reach similar numbers in India.”
With both firms pursuing similar strategies, the one that manages to execute it the best could well take the pole position worldwide. The Indian market has grown from being the 12th biggest market for cars in 2006 to the sixth largest in 2010. By 2018, it is expected to become the third largest after China and the US, with sales of well over 5 million, more than double the current figure.
“Considering these facts, India will play a very important role in the global growth strategy of the Volkswagen Group,” Chacko said.
The fight for the global top spot intensified in 2006, with as many as five contenders in the fray (see graphic). The gap between these firms is narrowing. However, barring Hyundai, India is an insignificant contributor to any of these firm’s global sales.
By 2018, India would be a big market and if any of these companies can wrest a 15-20% market-share here, it could prove to be decisive,” said Pradeep Saxena, senior vice-president at industry researcher TNS Automotive. “Currently it is a very small market for most of them and the critical factor would be how much of this market can VW and Toyota wrest from Maruti, Hyundai and Tata here by 2018.”
The world's second fastest growing economy is thus an engaging battlefield. Indian consumers could well gain because these giants could be wooing them to gain market share.