The automotive industry being one of the most manufacturing intensive industries has been really hard hit by the effects of Coronavirus. In order to understand the long-term effects of the lockdown and the virus on the sector, Express Drives spoke to Steffen Knapp, Director, Volkswagen India. From understanding the new normal to the expected impact on sales and new model launches Steffen provided a deep insight into many topics. He also told us if the development of the Volkswagen Taigun will be affected by this Coronavirus crisis or not.
Express Drives: Many people have been asking us this – Once car companies get back to business, once the dealerships open, car buying is going to be a very different experience. So what can people expect once the lockdown ends and how will people buy cars?
Steffen Knapp: I think it would be a dramatic change. We have summarised the activities we are doing under the slogan, “Safe and Sanitized” journey. In this journey, you have to go on multiple routes. The obvious route is digitizing your complete sales and service funnel even deeper. We just announced that you can book your cars online along with service appointments and online appointments. So just to describe what that means, you go online, choose your preferred dealer and make a decision where it is a bring-and-drop service. Then you put in the date after which your date and appointment are verified. Your vehicle will be taken away from you and there will be a first inspection done around the car. This will be recorded on video and will be sent to the customer along with the changes required during the service. You have to confirm these changes and then this job is done in the car, and the car is brought back to you. A lot of the processes we are implementing are contactless because customers are lacking confidence at the moment. Apart from this, what we are doing is we have sent out strict guidelines to our partners in terms of sanitization. So all the touchpoints are going to be sanitized. The ones which are frequently touched are to be sanitized every hour.
For instance, all our employees wear masks and gloves. We will have a regular temperature measurement for our employees. The entire process, hence, pf going to a dealership will be completely clean and sanitized.
That is essential in order to bring back the business as it was before the crisis. So here are the two main streams under the summarization of “Safe and Sanitized”. First is the online push, which is clearly necessary today and at the same time it’s important to focus on the premises where we are working, where we are servicing, and selling vehicles. The people who are working with us need to be completely sanitized. We have launched online premises recently and have trained our complete sales and service force accordingly.
You just spoke about the online services that you came up with. What is your expectation from online or the digital part of the business? How do you see that growing and what kind of contribution do you see that making to the overall business?
It was close to zero and the past and in the car business, in particular, people tend to go to the dealership. They inform themselves, for instance, via our website or other publications, take their decision in a lot of cases remotely, and then they come and look and have to tangibly touch the vehicle. So the classical transaction was done in the dealership, during the negotiations, and then they came to a conclusion. I personally look at some examples we have in the group. In Sweden for instance, 15% of all car sales are done online, in our group. So I expect this to go into similar lines. So we will go around 15% in particular in the beginning when Covid-19 is still very visual for everybody. People are scared. We will see that a lot of business will be done there and I think it will be around 15% in the coming years.
In the next few months, people are going to be concerned about the virus. Do you see that as an opportunity wherein people will want to buy more personal vehicles?
Yes, definitely! That’s a huge opportunity and especially given the experience we have in China. Individual mobility is growing tremendously to the extent that we have more traffic jams in the cities because people tend to use their own vehicles and they are looking out for accessible individual mobility. So I think in India, we will see a major push in the used car business because at this time people are also scared about their financials. They are scared of their salary, their jobs, and businesses. I think they will rather look at accessible individual mobility and I think there is a chance for two-wheelers. We will also see growth in the used car and in particular from my point of view in terms of accessible mobility. The Polo, for instance in the small car category and in particular as a used car, where we believe Volkswagen has been working extensively and we will see this growing tremendously. And this is no miracle analytics. It is exactly what we see in China. It is exactly the same pattern. You have three trends. I mentioned it already. It’s the need for sanitization, a clean process. You will see the online space growing tremendously and we see individual mobility coming back.
So used car is the segment where you see most of this growth going initially?
Yes. All accessible solutions like leasing solutions, like residual value, financing models where you can either reduce the necessity to purchase or you go into models where you have small monthly installments. There is the Volkswagen secure concept wherein basically we are guaranteeing a certain residual value after three years. And with this model, we are able to reduce the monthly installment by more than 30%. That is interesting for customers because their outflow of liquidity is not that big. So these kinds of models will be popular in the new car space going forward along with a lot of financing offers. Attractive financing offers are important because customers will be cautious about the investments, clearly in such an environment which we see right now.
Once the carmakers get back to selling cars given the fact that the last two months have been really bad, can they expect some great offers in terms of discounts?
I personally don’t believe that. You will see interesting offers. You will see the value of us and the industry, but one can’t have to forget that our industry has been hit hard. We have nothing to give for free because, at the end of the day, we also have to safeguard our companies. And if we start going all bananas with discount levels and so on, I think this would be the wrong signal and it is financially not viable for us. For Volkswagen, I can say that we will not do this as we are clearly determined on the residual value. We are a reliable brand and this is what we always want to be. What we will definitely do is that we will offer a very interesting value proposition, be it financial solutions, be it a good car at a good value.
And we will offer obviously a very safe journey, not only in the handling of the process like we described before but also in the used car. So in the used car arena, you will have interesting offers from us, like fully refurbished cars with an additional year of warranty, sanitized vehicles and this is a process, a fair business model for the customer. So I don’t think that the industry will push out tremendous discounts. You know, it’s also not recommendable, to be honest.
Is the launch timeline for the upcoming SUV is going to be affected by this crisis of a few months?
No. We have launched the Tiguan All Space in March. All the vehicles are in the country so fortunately, before the end of the last financial year, we had imported the Tiguan AllSpace as well as the Tiguan. So once the lockdown is over, we will deliver these vehicles accordingly to our dealerships. So there is no change in strategy. And the third SUV is the Taigun, which is the first product of India 2.0, which is so far on track to meet all its requirements. There will be an additional SUV coming and that is also on track so far.
What is your expectation from the government in terms of the policy? What can it do to immediately propel the auto sector?
I’m a big supporter of a free economy and means that we as a player in the market have to provide interesting offers to our customers. That’s clear. So I’m not saying that it’s the task of the Government to fix everything. That’s not my policy. I think a Government has two objectives. First, they have to make sure that the complete framework of doing business has to be stable so that we can plan because, in our business, our investments are always long-term and huge. So my first recommendation is to be really clear about what you do, be clear how you are coming back to normality. If not directly to the industry but definitely for the small and medium companies. It’s a big portion of the Indian population being dependent on SME and MSMEs so we have to give them some relaxation, be it in taxes, be it in giving easy access to liquidity in order to overcome this crisis. There are a lot of customers coming out of this group because they are employed in small companies. We have only a small portion of big players in India who are employing a lot of people. I think there must be some initiatives taking place.
Secondly, if I look at the importance of the auto industry in India, it is 7% of the gross domestic product and also, there is a high proportion of exports, which are bringing money into the country. Our association SIAM and FADA have written multiple letters to the government and proposed multiples ideas. Scrappage policy is something that is not only helping us as an industry but is also helping the environment. You get old clunkers out of the roads and you get new cars with the latest technologies on the road.
At the same time, the government is also running the GST on those vehicles. So that’s an interesting proposition and I always believe it should be a win-win situation. So these are the three elements what are really for me. For me, it is really required to announce a clear plan, not to change it frequently, make it on time because to build up a supply chain, one needs to get the people back from their home villages into the factories and it’s not an easy thing.
How do you see the sales and growth turning out to be at the end of the year?
There will be no growth and everything here depends on the speed we can pick up again. Also, we do a lot of scenarios. We have five scenarios. We’re looking at the curves from countries that are ahead of us. So for instance, in China, six weeks after the lockdown opened, they were back to 90% of their pre-COVID-19 workshop business. So it resumed in six weeks’ time but it is impossible in India for things to be that fast. We think most likely not but you never know.
Not a lot of customers are refraining from purchasing a vehicle. The intention is the same. They only think that what has changed is the budget. So they are not prepared to pay so much more. So I can tell you it’s very difficult analytics and very difficult planning.
I will give you an example. In 2019, in the last quarter, I was not expecting better car sales than in 2018. I was not expecting that the market goes back to 2018 levels but what happened! We actually sold 1100 more cars in the last quarter than we expected. You cannot take two or three months of no sales and have no hit. So, to put it in a nutshell, it is very difficult to predict. I think we will see a hit clearly but we don’t know where the scope is.
