India not a priority market until 2015: VW

India will not be a priority market for introduction of new models, such as small car Up! and major investments till 2015 as the "business case is not positive", German auto giant Volkswagen said on Thursday.

The company, which is currently having VAT refund issues with the government of Maharashtra where it has two manufacturing plant, is undecided on setting up fresh facility required for new models like the Up!.

"India is a possibility... We are looking at the business case, which is not positive. In connection to the investment we need to do, we are not in the situation to do that," Volkswagen Group board member and executive vice president Ulrich Hackenberg told reporters.

When asked why there has been a delay in introducing the Up! in India, he said: "We will need a separate production facility for Up! which is not available at the moment in India. We will need to invest for another plant."

The company's current plans for investment in the Up! is for South America, he added.

On other new model launches from the group in India, he said it will depend on how the market develops in future.

"We are looking within the group, not only VW brand, for the segments which are successful all over the world. One big segment, which has volume, is the segment priced lower; and a big market for such cars is (in) China," Hackenberg said.

He said the group may  conduct a feasibility study in China and India.

When asked how long the firm will hold itself from taking any major decision or introducing new models, Volkswagen group chief representative (India) John Chacko said: "Down the line, looking towards 2015, that's the right point of time to make decisions."

He said during the interim period, the company will continue to launch more derivatives of models from the existing platforms.

"...we will expand; but (for) new models like Up!, or any big investment, those will be decisions that I don't think will be taken between now and 2015," Chacko said.

In January year, VW group had announced plans to invest Rs 2,000 crore (Rs 20 billion) for expanding operations in India, only to declare later in May that those have been put on hold as the VAT refund issue with Maharashtra government remained unresolved.

To woo investors, the state government earlier used to refund VAT paid on all vehicles sold by companies, which have factories in the state. It was modified last year with the state government saying it would refund VAT only on vehicles sold within the state.

When specifically asked about Up!, Hackenberg insisted that there was no question of putting investments

on hold in India, as the group had never finalised a plan for the car in the first place.

"We never had any decision to do it. It was in the planning and feasibility phase, and the feasibility phase is not closed. In the feasibility, there are so many parameters to consider for a business case," he added.

When asked about plans to set up an engine assembly plant in India, Hackenberg said it will be necessary to be successful in the future in India.

"It's also a question of when we want to invest money for such a plant...If you want to be successful in India, you need to go for almost 100 per cent localisation that means localise engine, gearbox everything...(but) business case is not positive at the moment," he added.

Chacko also said the current macro economic environment was also not conducive for taking investment decisions in India.

"Look at the growth rate of the Indian economy, it went down… It was supposed to be and should be 7-8 per cent... It does not directly affect (us), but it affects our decision making process... Policy framework is not conducive," Chacko said.

He, however, hoped that the engine assembly unit for both petrol and diesel models is likely to come up before 2015.

"We are starting step by step with our vision and it will be with engine assembly, followed by localisation of other parts," Chacko said.

VW group witnessed an overall growth of 10 per cent during last year in India, he added.

Asked if the VW group has lost momentum in India, Chacko said: "The Indian market is very volatile. If you have noticed, the past two years haven't been particularly resounding as far as the growth rate is concerned. That's why the group has grown with the market at about 10 per cent... It's not stagnant, it's growing."

"It has become more and more difficult as far as the business case is concerned...not good to pour more and more money".

Talking about the group's overall performance in the Indian market, Hackenberg said: "There is some space for improvement... It should be possible to bring more cars in the market."

He also said the group, which is present in India through three brands - Volkswagen, Skoda and Audi, is working on repositioning of the brands.

"It's a question of how different brands are placed against themselves in the market. Skoda has a quite high position. In the group, Skoda is little bit positioned under Volkswagen. So, we are on the way to make a correction," Hackenberg said.

The group is currently investing 100 million euros (over Rs 700 crore) in India in the next two years for upgrading products and facilities. It has two manufacturing facilities at Chakan and Aurangabad in Maharashtra.