Volkswagen opens India car plant

Volkswagen AG said it will start production at its EUR580 million (US$ 766.9 million) India factory in May, as global auto makers seek to expand into this potential growth market amid shrinking sales in the U.S. and Europe. The plant, inaugurated, will initially make the Fabia compact car of Volkswagen’s Czech unit, Skoda Auto A.S.

This will be followed by an Indian version of Volkswagen’s Polo hatchback model in early 2010, Jochem Heizmann, board member and in-charge of group production at Europe’s biggest auto maker by sales, said in a statement.

The German auto maker will also introduce the iconic Beetle car by December in India, the statement said. Heizmann is in India to attend the inauguration of the factory, Volkswagen’s first in the South Asian country. The plant – located near Pune city in western India – will employ about 2,500 workers by December, he said.

Global auto makers are building new factories in emerging markets such as China and India as they try to offset the downturn in the U.S. and Europe. Growth has also slowed in recent months in China and India as the global financial crisis takes its toll, but they still remain the world’s fastest-growing major economies.

The slowdown has led U.S. auto makers General Motors Corp. and Chrysler LLC to seek billions of dollars in government loans to avoid bankruptcy. Volkswagen’s global sales fell 15% to 809,200 vehicles in the first two months of 2009, with its core VW passenger car brand reporting a 7.5% decline to 516,300 cars amid slumping economies worldwide.

“With the start of production the Volkswagen Group has conclusively arrived in India’s emerging market,” Mr. Heizmann said. “Thanks to the local production of Volkswagen and Skoda models in Pune, we will benefit even more from the enormous growth in the Indian automobile market in future.”

In India, sales of cars and sport-utility vehicles remained almost flat on year at nearly 1.39 million units during the 11 months of the current financial year ending March 31, compared with a 12% rise in the year-earlier period. Analysts and auto makers, however, predict the local market to touch 3.0 million units by 2016, fueled by economic growth, rising incomes and construction of cross-country highways.

“Of course India is feeling the effects of the global financial and economic crisis too,” Mr. Heizmann said. “Growth of the local automobile market has slowed down since the second half of 2008. Despite the present crisis, we are firmly convinced that the Indian auto market has enormous potential.”

In India, Volkswagen group’s sales surged 47% in 2008 to 18,725 vehicles on demand for its Audi, Skoda and VW brands. Volkswagen said it will continue to assemble the Jetta and Passat sedans at Skoda India’s factory at Aurangabad in Maharashtra.

Volkswagen also sells the Phaeton sedan and Touareg SUV in India as direct imports. In addition, its premium brand Audi AG assembles the A4 and A6 sedans at the Skoda factory. Audi also sells the A8 sedan as well as the TT Coupe and Q7 models in India.

Skoda India sells a range of cars including the Fabia as well as the Octavia and Superb sedans.

Source: Wall Street Journal