Why Volkswagen is betting on sedans in an SUV-crazy market

German automaker Volkswagen's upcoming compact sedan is all set to hit the Indian markets in March. Although formally unconfirmed by the company, the product is likely to be called the Virtus and is expected to be priced between Rs 12 lakh to 17 lakh (ex-showroom). The sedan, underpinned by the localised MQB A0 IN platform, will be similar to Skoda Slavia which is built on the same platform, and will compete with players like Maruti Suzuki Ciaz, Honda city, Hyundai Verna and others.

The company says it's betting on its new sedan to drive up its volumes in India. Going for a sedan in an SUV-crazy market like India is a bold move, experts say.

"Sedan segment is not something which has completely gone out. Sedans still constitute 12-15 per cent of the market and if we talk about market projections for this year, at the minimum the industry will sell 3 million vehicles. So, that means even at a conservative 12-15 per cent segment share for the sedan, it still constitutes a market of 4 lakh vehicles a year. It's still a body style loved by Indians," Ashish Gupta, Brand Director, Volkswagen Passenger Cars India told Business Today.

Gupta does acknowledge that SUV as a segment is seeing massive growth. "SUV has become the dominant body style and has been growing to a large extent but the sedan segment has a lot of charm for a particular set of customers. The segment itself is devoid of too many options," he said.

He said the company's new launch will be a "segment-defining and will end up growing the segment. "When it comes to positioning, it's a global product and comes with VW's DNA of safety and built quality.  We will come out with a dynamically different product and positioning," he said.

In late 2019, the VW group announced a massive structural and operational overhaul worth 1 billion euros, one of the biggest investments in the Indian auto sector. The group merged its three units-Volkswagen India, Volkswagen Group Sales India and Skoda Auto India-into one entity called Skoda Auto Volkswagen India to streamline decision-making. In came the successful MQB platform to manufacture cars locally, reducing retail prices. VW's latest launches like Tigun and Tiguan are in tune with the group's India 2.0 strategy.

"Our product portfolio is now very fresh in the Indian market. Tigun is hardly five months old, the Tiguan has been launched recently and our new global sedan will come in early Q2. Our priority is to establish these three products and consolidate our portfolio,' he said.

He added that the company has also taken major steps in the last two years to improving total cost of ownership by 20-25 per cent. "Our aim will be to continue doing that even though the input costs and the aftersales-side costs are also increasing," he said.

VW is targeting upto 95 per cent localisation for India 2.0 products and aims for 3 per cent market share by 2025-26.

"We have already launched two volume products. These itself give us presence in two big segments. The SUV segment is around 20 per cent of the overall market and sedan segment is 12-15 per cent. We are going to be present with our mass products in 30-35 per cent of the market. At the same time, we're still continuing with the Polo and the Vento. It gives us market coverage and an option for the customer to upgrade within the brand. These volume products should give us the kind of market share we're targeting," he added.

The company is targeting all mass segments with its India 2.0 products. On the electric vehicle (EV) front, however, the brand would like to follow a wait-and-watch approach while other carmakers like MG Motor, Tata Motors and Hyundai are already out with a line-up of EVs in different segments. 

"The whole innovating on electrical globally at the headquarters and the projects that will come out of it will have India on its focus. Today, the electric market especially in passenger cars is less that 0.5 per cent but the good thing is that it's doubling every year. By 2025-26, it will be 5-8 per cent of the market," he said. That, he adds, will be an interesting point where one can actually think of bringing in the global portfolio or an electric car customised for India. 

"Definitely, the transformation for us into electric, keeping in line with global developments will happen in the second half of this decade," he said.

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