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VAT issue could play spoilsport in VW's expansion plans
March, 02nd 2012

German automaker Volkswagen is keen on ramping up capacity at its Chakan plant near Pune but cannot do much till there is greater clarity on the issue of VAT (value-added tax) refunds by the Maharashtra government.

The subject has been hanging in the balance for a year now and has also affected other automakers like Mahindra & Mahindra and Bajaj Auto.

Dr John Chacko, President and Managing Director of Volkswagen Group India, said here on Thursday that the company was willing to wait for sometime longer, although he did not specify a deadline. VW has already pumped in Rs 4,000 crore into its Chakan facility but will keep further investments on hold till the subject of VAT refunds is resolved.


The facility has a capacity of 130,000 units and produces both VW and Skoda models like the Polo, Fabia, Vento and Rapid. Over 110,000 units rolled out in 2011 and full capacity could be reach this year itself if the VW group's bullish outlook for India is any indication.

For instance, Skoda accounted for over 30,000 units in 2011 and is confident of upping production by 50 per cent this year thanks to the overwhelming response to the Rapid. Likewise, VW has been on a roll with the Polo and Vento and plans to pull out all stops to keep the momentum going in 2012.

Dr Chacko said exports would be an integral part of the VW group's plans for its India business. For the moment, this barely accounts for 10 per cent of total output but will increase in the coming years, especially with the slowdown in Europe compelling automakers to revisit their business plans. VW will, therefore, look at a host of options using India as a hub but all this will have to wait till the VAT refunds issue is sorted out.


Earlier in the day, Skoda introduced its new Managing Director, Mr Sudhir Rao who was earlier Chief Operating Officer of Renault India. This, by itself, is a new post for Skoda's India operations, prompted by its vision to grow beyond Europe in what it refers to as a demanding transition'.

Managing the transition is vital and Sudhir's job would be to take the brand to the next phase, said Mr Jurgen Stackmann, Skoda's Board Member and Director (Sales & Marketing).

The Czech carmaker has targeted global production of 1.5 million cars by 2018 (it wrapped up 2011 with nearly 880,000 units) where India, along with Russia and China, will play a big role. At present, 60 per cent of its sales come from Europe but this component will be down to 40 per cent by 2018.

The integration with VW is imperative to Skoda's growth and these synergies are already in place with the common platform strategy for the Fabia-Polo and the Vento-Rapid. The next step would logically be the VW Up and Skoda Citigo in the booming B plus segment but there is no official word out on the India launch.

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