It seems Volkswagen AG is continuing with its expansion plans for India, with procurement of components for global operations being a key agenda. The company also aims to triple the amount of components it sources from India in the coming 3-5 years, taking the total amount to more than Euros 300 million or Rs. 2074 crores.
The automotive giant hopes to increase its network of suppliers, doubling the number to more than 200 in a bid to expand its range of components for internationally available models. Undoubtedly, the company will be able to bring down the bill it incurs for procuring components with this move. Additionally, such a step will help the company in augmenting localisation levels for its upcoming small car UP! to more than 90 per cent, which will be unveiled in the next 2-3 years.
The increased level of localisation will enable the German car maker to give its small car a competitive price tag and give stiff competition to Maruti Suzuki and Hyundai, which dominate the small car segment currently.
Mahesh Kodumudi, Executive Director for Components Purchasing, Volkswagen Group India, said, "We are still seeing India as a very competitive sourcing base – there's a cost advantage of at least 10-15% over Western Europe. And having worked with Indian vendors over the past few years, their capabilities too have matured and we do see them playing a bigger role."
VW aims to spend monies in the tune of Euros 250 million or Rs. 1728 crores on tooling and vendor development in the coming time, keeping in mind new models like UP! This amount will be comparable to the total investment the auto maker has made in India since it first entered the market.
Presently, the company is engaged in procuring power train components, engine and transmission parts, metallic parts, sheet metal and many small plastic parts. It is estimated that VW will source plastic parts worth Euros 50 million or Rs. 432 crores every year.
The new focus on procuring parts from India for global as well as domestic operations will cost the company only 1 billion, resulting in considerable savings. This amount will be in stark contrast to the 70-80 billion Volkswagen spends each year on components globally. With greater localisation, the company will be able to derisk itself from currency fluctuations that have marred the Indian auto industry.
