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Volkswagen to restructure India business amid biggest-ever import tax demand
Close to 10 senior-level executives at Volkswagen India resigned or were asked to quit in the past few weeks, as part of a planned “course correction”.
Volkswagen Group AG restructuring its business in India, even as its grapples with the country's biggest-ever import tax demand and empty corner offices.
Skoda Auto, a Volkswagen Group brand that has been leading the carmaker's India strategy since 2018, has hired external experts to conduct a thorough review of its systems and processes and recommend improvements, Piyush Arora, chief of the local unit, said in an internal memo sent to employees on 8 September.
“Engaging a third party will provide a neutral perspective and some out-of-the-box ideas. I request you to support and cooperate with the team,” he said in the memo, which was reviewed by Reuters.
The memo did not detail any changes on investment and jobs.
Skoda is deeply committed to the country and will invest in new technologies and manufacturing even as it faces shifting market trends and increasing competitive pressures, Arora said in the note.
Volkswagen India Layoffs
The restructuring exercise, which he said is the beginning of a "high performance organisation" journey and a course correction, coincides with the departure of close to 10 senior-level executives at the carmaker over the past few weeks, two sources aware of the exits said.
This includes:
- Nalin Jain, finance chief and India board member
- Sarma Chillara, head of human resources
- Deepti Singh, head of external affairs
- Hemant Malpani, head of cost control
- Shriniwas Chakravarthy, head of quality management
Some resigned and some were asked to leave, sources said.
When contacted by Reuters, Skoda Auto Volkswagen India Pvt. Ltd. said that the personnel changes correspond with standard company HR processes, without elaborating.
“India is a key market in Skoda Auto's internationalisation plans. We are always considering new business opportunities and are evaluating various options to ensure the best possible solution to implement our strategy in the highly dynamic Indian market,” the company said in a statement.
The planned restructuring also comes as Volkswagen faces India's biggest-ever import tax demand of $1.4 billion for allegedly evading levies. For 12 years, between 2012 and 2024, the company misclassified imported car parts and components that, according to the government, should have been treated as completely knocked-down units and taxed at higher rates.
Volkswagen has denied the tax claims, saying that its practices are in line with India's rules. A court is yet to rule but if the company loses, it will need to fork out $2.8 billion including penalties and interest.
Role Of India In VW's Scheme Of Things
Skoda is at a crucial point and needs to finalise its next leg of investment in India, a key market for the carmaker outside Europe given it no longer has a big presence in China and has exited Russia. With stricter fuel efficiency norms set to kick in from 2027, all carmakers will have to introduce electric cars and Skoda and VW currently do not sell any in India.
The company has plans to adapt Volkswagen's EV technology from China for India in which Skoda CEO Klaus Zellmer has previously said it will invest and is looking for a partner with “local roots”. It has an agreement with India's Mahindra & Mahindra Ltd. to supply some EV components.
The restructuring is to ensure the company is lean and agile to compete with nimbler rivals ahead of making new investments, said a third source with direct knowledge of the matter.
Volkswagen India Business
Despite being in the country for over two decades, the carmaker has struggled to become a significant player. Volkswagen and Skoda Auto brands together account for just 2% of India's 40 lakh units a year car market lagging newer rival Kia and established players like Toyota.
Even as the carmaker's revenues in India have nearly tripled to $2.15 billion from about $766 million five years ago, its profit in India has dropped to $10.6 million from about $85 million over the same period, regulatory disclosures showed.
