January 12, 2012

Those Who Are Not Investing In Technology Will Not Survive

H.C. Winfried Vahland, chairman of the Board of Management at Skoda Auto talks about emerging nations and the future of automobile manufacturers.

Goal: Be a volume player

2018 sales target: 1.5 million cars

2011 sales: 80,075,000 units

Growth right now: 15 percent

Strategy: Increase market share in Europe, expand in Eastern Asian markets like China, India and Russia

Action: Building capacity in China, Russia and India to cater to these markets. Rapid, launched earlier, is outcome of this strategy.

Q: Have you taken a round of the Expo yet?

Not only the Expo but also the city. I have traveled frequently to India. It is an interesting country. And now I have come back and I see it is pretty nice. Not very humid in Delhi. About three years back, I had the chance to be in Udaipur with my wife and we saw the Lake Palace and then at Jaipur we bought carpets. Yeah, Jaipur is famous for nice carpets. And then there was this Tiger Park in the north. It was nice. And coming to business, India is different. Incredible India you call it. For instance I learnt that you have 268 parties out of which 24 are important. You don’t see this magnitude and variety of different interests, so colours make difference, spicy food makes difference, religion makes difference, and you have 29 states with different laws and independent. These are things which make you feel that India is not comparable to any other country. It makes it interesting for an international global person like me who has lived in South America, in Europe, United States and China. India is very interesting.

Q: All of this also means that India is also very complex. So as an automaker with a certain ambition in India, how do you go about your business?

Yes. It is very complex. First of all let’s talk about entrepreneurial experience in India. If I look at, for example, Germany and also in China, industry is making more than 40 percent of GDP growth. In India it is a little bit more than 10 percent. There is still a lot of focus on service and agriculture. But the balance towards industry, I would not say from my point of view is healthy. There has to be a much more balanced approach to industry because that brings employment, social security and also income. We already have some examples of places where too much investment is in service and it is not always good. Therefore the focus on industry and support to industry is not yet that developed in India as I can see in other countries. In China, it is very clear. There is a focus on bringing employment to 1.3 billion people. That’s why the big focus is on the automotive industry. That’s my experience of having lived five years in China. The complexity here, it is much more difficult to build a sound business case. And I would really request a little bit that policy makers also provide a little bit more sound ground to industry.

Q: In that context, how different are other emerging markets. So let’s say Brazil or Russia?

Russia is today pretty much into reviving the automotive industry. This industry was dying. Now they are trying to bring everything back. For example, the automotive supplier industry is much better developed in India than it is in Russia. But they are hugely investing in bringing automotive technique which brings employment. So, I would say in this way, Russia is different. There are fewer competitors in Russia as compared to India. The local players are not as strong as they are in India. And the market is also different. They don’t have these low budget markets as we have in India. And Brazil [does not have its] own brands, only international brands. What is a little bit similar is the car size. In Russia for example, and in China, they want big cars. In Brazil and also in India, because of cost and because of size smaller cars are appreciated.

Q: Is partnerships really where the future of the automotive industry is?

In the long term, yes. But the automotive industry’s end has not yet come. It is still under way. There might come out some international brands from China. The country has strong local brands which make already more than 3 million cars per year. [These may,] one day, develop as international brands. Tata Motors already is becoming an international player now with the acquisition of Jaguar and Land Rover and with an engineering base in Europe. So how will it develop and look like in 10 years is let’s say still under development. So technology is coming and environmental issues are coming. I believe that [those] who are not investing in technology will not survive. And the Volkswagen group, for sure, is the technological leader and Skoda is glad to be part of the Volkswagen group family. We can provide not only safety and quality but also technological things for consumers that others cannot do. Sometimes these things are not visible in the car but if something happens you know you are driving a Volkswagen group vehicle.

Q: A lot of manufacturers here at the Expo are talking about compact SUVs and larger vehicles. Skoda kind of ventured into that space with the Yeti and I am not sure if it met your expectations in terms of sales?

The Yeti is competing in the compact European SUV segment, so you know 4X4 and now 4X2. It is number second after the BMW X1. The vehicles that you are speaking of; lot of these cars don’t get 4X4. It is more about appearances, if you know what I mean. I don’t know the current EcoSport (Ford) that is a concept car here but the EcoSport in Brazil when it was launched, it had the look of an SUV but in reality was a normal passenger car with bigger head. I don’t know whether it is the right approach for our company. It is a little bit of a pretender. It is pretending to be something which it is not. It worked in Brazil. It works for a period of time but it might not work always. It might work out for the next few years because it is new, it is fresh, it has the imagination of an SUV, it has the appearance but it doesn’t automatically mean it is a product for the long term. I would not bet on it.

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