Volkswagen starts production of first India car

Volkswagen AG started production of its first compact car in India on Saturday, hoping to capture up to 10 percent of the country's fast-growing automobile market within the next six years, the company said.

The Polo, a compact hatchback, rolled off the lines at Volkswagen's factory in Pune, an auto hub a few hours outside Mumbai, shortly before noon. The factory, opened earlier this year, is part of a 580 million euros ($846.8 million) investment, which the company says is a "key element" in its India strategy.

The factory can produce up to 110,000 cars a year, and will be used to manufacture the Skoda Fabia, Polo and a sedan to be launched in the second half of next year, the company said.

It did not reveal the price of the Polo, which has gotten 130,000 orders since its European launch in May.

"We aim to achieve a market share of 8 to 10 percent in the next four to six years with the three Volkswagen Group brands, Audi, Skoda, and Volkswagen," Volkswagen Group board member Jochem Heizmann said in a statement.

Global auto majors Volkswagen, General Motors, Ford and Nissan have been slow to awaken to the particularities of Indian consumers, who overwhelmingly prefer small, affordable cars rather than the more luxurious models that sell well in the U.S., Germany and China. Now, as developed world sales slow, they're racing to catch up.

To do so, they must make cars in India, which allows them to avoid hefty import taxes and keep production costs competitive. Volkswagen said it aims to boost localization to 80 percent of total production from 50 percent now.

Ford says its made-in-India compact, the Figo, will go on sale in the first quarter of 2010. Nissan says its first India-made car — a new version of the hatchback that now sells under the Micra brand in Europe and the March brand in Japan — will roll out in May 2010. General Motors started India production of its pint-sized Chevrolet Spark in September 2008, and is reportedly planning to launch a new model, the Chevrolet Beat, in the first half of next year.

Volkswagen also bought a piece of India's rising prosperity with the purchase of a 20 percent stake in Japan's Suzuki Motor Corp. Suzuki's Indian subsidiary, Maruti Suzuki, sells one of every two cars in India.

JD Power forecasts car sales in India will grow from 1.7 million in 2008 to 3.2 million in 2015, while auto sales in China will surge from 8.8 million to 16.0 million over the same period.