German carmaker Volkswagen says that 2021 is going to be one of the most important years for them in India as it will give way to the results of their new strategy—India 2.0. The company expects to become a sustainable, premium brand in the country and is all set to launch two SUVs next year.

The company, which entered India in 2001 with its ŠKODA brand, saw a negative growth of 19.61% in September 2020. Volkswagen Passenger Cars India’s director Steffen Knapp speaks to Fortune India on the company's road to recovery, changing trends in the post-Covid world and why India’s electric vehicles' growth momentum has taken a hit.

Edited excerpts:

You had massive expansion plans in India pre-Covid. Are you still psyched about India’s growth story? Would we see some kind of a de-escalation of those plans?

No, we still believe heavily in the fundamentals of India’s growth projections. Our plans are the same. The investment is not deferred or reduced. We have announced ₹8000 crores two years ago and are completely in plan, and we will come up with our Volkswagen Taigun compact SUV by the mid of next year. India is one of the most promising markets of the future and it’s bound for growth from our point of view.

How difficult was the lockdown period for the company when sales were almost next to zero?

Everything, not just the company but your personal life has been affected by the Covid-19. In March, the industry went down by more than 50%. In April, the industry was zero. In May, we had 85% reduction, and then we’re steadily now coming back. The positive sign for us is that July, August and September were above last year. So, we have a good momentum coming back but clearly we’ve been affected by an unprecedented, and most likely, the strictest lockdown the Indian government had put in place. But I have to say that people in India are extremely stress resistant. They always find a way and fortunately we could stabilise our business.

Covid-19 has forced the auto industry to digitise its traditionally physical operations. How successful was Volkswagen in bucking this trend?

Digitisation was, before Covid-19, a key pillar of our strategy prepared for India 2.0 for our next-level products. We have invested substantial amount of money in digitising our sales and services. The Covid-19 has actually speeded up this process because people are scared of going to places with large number of gatherings. We immediately adopted online channels for sales and services during the lockdown. A lot is now touchless, a lot is digital and in line with the demand of our customers.

People ditching public transport is emerging as one of the major trends in the post-Covid world. Do you think this will push them to go for personal mobility now more than ever?

The first trend around the world is to regain the trust of people by sanitising each and every touch point. The second trend is the move to individual mobility. People will be more interested in this as compared to the past because they really want to be safe. And that means the used cars market is going to be up. We have invested in the last four months heavily into used operations and we have quadrupled our sales. So, people are opting for affordable individual mobility. We're selling 100% more Polos than we were selling in 2019. First-time buyers are coming because they want to avoid using public transport. And the last big trend is to go extremely quickly into full digitisation in terms of selling and buying online.

What is your expectation from the pre-owned car segment?

We believe that in 2022, the used car market would double versus today. People expect a very transparent way of dealing with used cars because they have some fear of buying the right car. The market will move towards organised used cars. You will have the same checks in terms of quality and transparency, just like you have when you buy a new car. We want to build the same experience for both the new car and the used car user. India is bound for individual mobility and used car could be the first step in that process. We also have a tendency towards leasing and subscription. In the past it was around 34,000 cars annually, only 1% of the total market. We see this doubling and even tripling. It's a massive phenomenon in the world, like in the U.S. and Europe. They want to rather use the car than own it. It's like music streaming. This can only happen if you have an organised used car operation. You will not change behavior in one or two years, but we're accelerating fast.

India saw a certain growth momentum pre-Covid for electric mobility. Has it taken a back seat now?

For electric vehicles, you need a 360-degree approach. On one side you need an offer from the auto manufacturer, and on the other side, you need infrastructure to be ready and the infrastructure requires a massive investment. Right now India needs a mobility form which is affordable. If you compare India to Germany, for instance. In India you sell 93% of all vehicles in the small car category whereas it is the exact opposite in Germany. The purchasing power is much higher. With this, you will never get a positive case for an electric vehicle for what the Indian customer wants. He is prepared to buy one; 85% of Indians say they will opt for an EV, but 96% say not at a higher price. This means that there isn't a positive business case and there is still some time to go for the Indian market.

India's not the best market, especially for foreign players due to higher tax regimes. What is your way around that?

The first thing is to understand the country in its full depth. We have matched their expectations, we have made ourselves slimmer, faster, and more flexible. We have lot more Indian management. In principle, you need to have locals who know the market better. The second thing what's key in India is value for money and newness. And value for money you can only provide with a deep localisation degree. Unfortunately, the tax situation is such that imports are definitely not favoured. And that's the reason why India 2.0 is so important for us because it moves our localisation from today around 80% to more than 93%. With this step, we will make ourselves much more accessible in the market, and it makes our business much more interesting by making us a sustainable company in India.

Steffen Knapp

Used cars are going to get big in India: Volkswagen