NEW DELHI (Reuters) -- Volkswagen will increase the amount of locally made parts in the cars it sells in India to cut costs and lift falling sales in a competitive market dominated by cheap small cars.
Five years after entering India, VW has captured just 2.1 percent of the market because its cars are seen as relatively expensive and it lacks a diverse mass-market product range.
VW is the market leader in China, yet it has struggled in India against competition from carmakers such as Hyundai, Maruti Suzuki and Toyota.
The problem has been compounded by India's worst economic slowdown in a quarter of a century that has depressed passenger car sales for the two consecutive years that ended on March 31.
This has forced VW to step up sourcing of components from India to cut costs and broaden its appeal. "Indianization is certainly a key word we learned about," said Michael Mayer, director, passenger cars at Volkswagen India. "We need to make the cars more adapted to the taste of the Indian customers."
Mayer said VW may not have had localization in mind when it entered India in 2010, but it is now a key part of its growth strategy, marking a shift in how it plans to boost sales in a market with vast potential.
VW plans to raise the local content level in cars to 90 percent from about 65 percent to 70 percent now by building engines and transmissions locally. While it has not decided when it would start building these, Mahesh Kodumudi, Volkswagen India president, said it would be a necessary step to have a sustainable business model.
Kodumudi said on July 15 that VW could increase output in India to 200,000 cars a year from the current 130,000.