As part of its 100 million Euros (Rs. 800 crores) investment plan for India, Volkswagen is planning to locally produce engines in the country. The company wants to achieve up to 90 percent of localisation for its vehicles within a few years from the current 70 percent. In order to achieve the high percentage of localisation, Volkswagen needs to assemble engines and gearboxes in India. The new investment will also see the introduction of a new compact sedan; compact SUV and hatchback that will help the company further grow in the Indian market.
Volkswagen is currently considering the assembly of certain engines with certain key components that will be localised in India. The localisation benefits will also be extended tothe Group’s five other companies that are operating in the country. Volkswagen states that the company is preparing itself for the next growth phase which is expected to start in the new two years. Till then, Volkswagen is working on improving productivity, optimising costs structure and upgrading sales and service network.
The localisation of components will not only help in reducing costs, but will improve cost competitiveness. Volkswagen will be able to price its products more competitively in the market, while also increasing on its profit margin. The German car maker is also planning to expand its production capacity at its Chakan facility, near Pune. The plant currently produces around 1.3 lakh vehicles per annum, which can be increased to 2 lakh vehicles per year, with some minor upgrades. The company produced 1 lakh vehicles in 2013 based on the demand from the domestic and export markets.
The localisation of engines could commence with the new 1.5-litre 4-cylinder TDI diesel engine that has been specifically designed for India. The new engine replaces the 1.2-litre TDI unit in the Polo and the 1.6-litre TDI unit in the Vento, both of which will receive a facelift later this year. The engine will also be introduced in the Skoda Rapid by the end of 2014. Volkswagen is also planning to re-introduce the next generation Passat in the country at a later stage.