Skoda, Volkswagen deepen India 2.0 bond

When the Volkswagen Group announced its India 2.0 programme in 2018, it was a strong statement of intent to hang in there and fight it out in the world’s most competitive car market.

It was also a do-or-die situation where group company Skoda Auto was entrusted with the task of lead-managing the exercise. This initiative would see competitively priced Skoda and VW brands of cars and SUVs produced on the all-new MQB AO platform especially designed for India and other emerging markets.  

Fast forward to the present and Gurpratap Boparai, Managing Director of Skoda Auto Volkswagen India, has reasons to be pleased. The integration of the brands is pretty much complete and new products like the Skoda Kushaq and VW Taigun are already out on the roads. The Skoda Slavia sedan is the latest addition to the stable and, on the face of it, things are on course. 

“Initially, there were apprehensions among people,” concedes Boparai. After all, these three entities — VW, Skoda and VW Group Sales — had evolved in India at “three different points in time and in three different locations with different sets of people” who built and created a distinct culture for each of them. 

All three brands are part of the same group and yet very different. “By definition, a sales and marketing organisation is different from an industrial organisation but they were at separate locations and had been led by separate people. Quite naturally, there were a lot of apprehensions about somebody taking more charge,” says Boparai. 

Yet, being someone “coming from the outside”, the obvious advantage was that the new MD was not seen as somebody who was part of “this or that”. 

As he puts it, “I tried to do as fair a job as possible and think that we have been fairly successful in making sure that most people in the organisation did not feel that they lost something in the process of the merger . . . rather most of them have gained because there are more responsibilities and we have been able to utilise them better.”

While the Skoda Kushaq and VW Taigun are already on the road and have sold 9,297 and 4,012 units respectively till end-October 2021, the Slavia has been announced and local assembly of the new Tiguan 
has begun at Aurangabad. 

Nurturing a culture of excellence
Today, Skoda Auto Volkswagen India is working on establishing a culture that is common across the entire ecosystem. Boparai reiterates that he has “a very good team” where there is a similar approach all around. The most important part is the “consistency in the way” leadership acts in an organisation. 

By the end of the day, the top management has been impartial in mapping skills of people across all three organisations and making a fair evaluation in the process. For instance, if there are three CFOs from each of these brands vying for the same position in the merged entity, there is a committee interviewing all three and picking the best. 

“We did this for all key positions,” says Boparai while driving home the point that it was not as if the CFO (or any similar senior position) of the biggest organisation automatically took over as CFO of the merged entity.
His colleague, Zac Hollis, Brand Director, Skoda Auto India chips in to add that the focus was also on local talent quite unlike the set practice of having only expats handle three different organisations. While the process of cultural integration is pretty much done, Boparai adds that the whole team has to move in a certain direction which is a “never-ending journey”. This is because goalposts are shifting all the time which is keeping in line with any robust organisation.

He also makes it clear that there is never any case of one-upmanship where one brand tries to outdo the other. After all, both Skoda and VW are “our babies” where it is important to ensure that neither is left wanting for attention. “We are one big family and if we see a struggle in some section, we will come out in support,” adds Boparai.

For instance, the Kushaq was the first to debut from the new platform but the lessons learnt were shared with the VW team that was gearing up to launch the Taigun. There was really no prodding required to be open and transparent because everyone knew that the two brands had to do well. “Sure, we have our internal rivalries — and we should because it keeps us on our toes — but we act together,” says Boparai.

Hollis adds that both Skoda and VW have joint meetings on network issues because there are smaller cities / towns where the brands share workshops. While there are separate brand experiences planned for customers, the backend is all shared because “we need representation in that particular town” and a solo business case cannot possibly be conceived with Skoda or VW alone.

Hence, the “Y solution” where, as the letter indicates, it is about having two showrooms and a joint workshop. This also helps the dealer because he ends up with lower investments on overheads, manpower and “can manage the ups and downs” of one business versus another. 
“We have got quite a few of these ‘Y’ concepts and they are working really well. This will be our focus as we expand more and more into smaller cities and towns since that is the only way to make a business case,” says Hollis. The good news, going by market response, is that both the Kushaq and Taigun “offer a very different look” which is keeping in line with what the engineers and designers had set out to do. “It is up to sales and marketing to now deliver and give customers what they want,” he adds.

Chip-and-ship challenges
These are not the easiest of times for the global automobile industry with disruptions galore across the supply chain which, in turn, have resulted in a shortage of semiconductors as well as containers. Boparai is of the view that the container challenge will get resolved after a certain point in time and remains more of a cost issue. 
However, semiconductors are “a bigger problem because even if you pay you don't get them”, quite unlike containers. Three months ago, when allocations were being done for chips, headquarters in Europe set aside enough volumes for Skoda VW to handle production plans this year. However, even those chips that were promised by the supplier nation have not come, which pretty much means that the basket has become smaller and smaller.
“Unfortunately, every two weeks, it becomes even smaller and we will face some effect because of that — even though it will be lesser on us than it has been for other regions/markets,” says Boparai. The world has realised that the time has now come for manufacturers to try and de-risk the supply chain even though it is not possible in all cases. 

“The movement is towards not putting all the eggs in one basket . . . keeping them in one basket is okay but when the basket itself is jittery at times, then maybe it is not the best idea,” he adds. The de-risking process of the supply chain will happen nevertheless since it is now a global wakeup call too. 

As Boparai explains, the whole world cannot be dependent on one country for something because there can be problems and disruptions which will wreak havoc across the system. According to Hollis, this has been a valuable lesson learnt with electric cars too, especially when there was excessive reliance on battery manufacturers in one country. 

Bouncing back
Today, VW is setting up a battery manufacturing facility in Europe and other global carmakers will also spread their risks…”otherwise one is at the mercy of one chain which can break”. It is also an established fact now that the chip disruption occurred due to a mix of health emergencies (the recent Covid outbreak in Malaysia) and “structurally underestimating” demand. 

During the first wave of the pandemic, a lot of supply commitments were made more towards consumer electronics thanks to more work happening from home and excessive use of laptops.

Further, chip makers expected people to be travelling much less . . . what they did not foresee was that customers would change their preference from shared to individual mobility “and that somehow got lost in their calculations”. As Boparai adds, they did not expect the car industry to bounce back so quickly.

In his view, the “overall demand all around was underestimated” for semiconductors and that in turn has spawned the current problem. “Once you have exhausted your stocks everywhere, the supply chain becomes so stretched that every little incident has an immediate downstream effect,” he explains. 

Any breakdown of a semiconductor plant means a spillover effect at auto and phone manufacturing facilities. “This is how tight it is today and nobody has coverage for more than three days and visibility of more than 2-3 weeks,” says Boparai. 

During the last 3-4 months, what was foreseen as production of chips has not materialised. There was a basket available and it was apportioned between everyone — first manufacturers and within this lot between regions and factories “but that basket size has just got smaller and smaller and smaller.” 

Consequently, the greater the “depletion of your stocks, the more frequently you have to change your setups and it further reduces output”. The Skoda VW chief is hopeful that the upcoming Christmas break in most parts of the world could result in a small opportunity to build stocks even though this will admittedly be little to write home about.

Yet, while this chip shortage is a matter for concern, Boparai is pleased that there is “a very enthusiastic team” in the company with the ability to think on their feet and improvise with a never-say-die attitude. “If you have that, you can overcome most problems though there are certain things you still cannot,” he says. 

This positive attitude was especially evident during the first Covid outbreak in January last year where most of the tools for India 2.0 were getting manufactured in China, the epicentre of the virus. Big dies for sheet metal or plastic parts were all made there but there was no way anyone could travel to China for final approval.

It was a huge challenge and even while the VW Group has a huge presence in China, there was only so much one could do with massive restrictions on movement. “We found ways to work on that and when we had to install equipment in the factory, none of our equipment makers could come to India,” recalls Boparai. 

This is because there were travel restrictions and “we had to again help them tie up with local people” who would then install on their behalf and again use a lot of technology. One of the first tasks carried out was to strengthen the Wi-Fi network in the Chakan plant near Pune to ensure live streaming everywhere. 

A lot of guidance came through from HQ via video and the team managed to cope with the challenge admirably. It was a tremendous sense of satisfaction and achievement of having done something — a “huge confidence booster for future products". 

As Boparai says, a lot of things have happened amidst this adversity “which made us stronger and more confident about the future”. Costs did increase for sure but “what we have done extremely well is to manage what we have been allocated within.” 

During the course of this project, there were huge savings made on overseas travel and stay costs. Likewise, people would have had to come to India and those expenses were also done away with. 

“We have paid more for chips and in airlifting stuff of course which means in the end it will balance out the cost structures temporarily. Yet, there have been certain things that have really shot up be it steel prices or other raw materials or containers but these will stabilise. At least, the costs within our control have been managed well,” says Boparai.  

On the marketing side, Hollis is pleased that there has been an impressive level of innovation during the difficult times of the pandemic. The first wave hit dealers last year and a lot of initiatives were taken to support them. “We launched the Rapid TSI and I was in Prague while the guys here were putting in place a complete virtual launch in India,” he says. 

Right now, this part of the world is actually in a better place than Europe which is registering high Covid cases though there is no telling if the tide will turn. “The good thing is that the Indian economy is doing well with robust demand for our cars,” adds Hollis.

Thinking EVs for India
The topic shifts to electric and the market feedback for the recent initiatives from Audi (e-tron) and Porsche (Taycan) has been more than encouraging with stocks sold out in record time. “We are talking about small numbers and are establishing our credentials as a leading EV manufacturer. When we are in a situation when volumes and the market are growing, we will look at local assembly and then production,” says Boparai. 

He is quick to add that it is impossible to give any specific timeline “because my crystal ball gets hazy and foggy beyond a certain point” but clearly VW and Skoda will be part of the electric drive during the course of this decade. “There are challenges for sure because EV volumes are still minuscule and one needs to see how long this momentum lasts,” says Boparai. 

After all, it is farfetched to assume that subsidies (in the form of FAME 2 and fiscal sops from states) will last forever especially in the arena of private mobility where a country like India has limited resources. The Skoda VW chief believes EVs will “really gain traction” when there is cost parity — not in the initial purchase but the overall lifecycle.

The average buyer is not willing to see beyond three years which simply means that in this period of use, if “you have your payback on buying an EV”, the customer will go for it. There is no point convincing him that he will have to wait for something like seven years — it will just not work.
Eventually, the answer does not lie in aggressive localisation but in the basic cost going down, especially batteries which make up for 60 percent of the vehicle. If this does not happen, mass adoption of EVs will be easier said than done. 

Richer nations can tax the internal combustion engine into oblivion and offer sops to EVs but India is a different ballgame. “It will happen only when it makes economic sense,” reiterates Boparai. 

This feature was published in Autocar Professional's December 1, 2021 issue.