Volkswagen Impact

How VW will impact Indian automobile industry?

The Volkswagen effect is far from over. The stock may have lost over 1/3rd of its value and the CEO may have stepped down, but the Pandora’s Box of diesel cars may have just been opened. The implications for Indian cars could be serious and long-standing.

Wither, diesel advantage…

The advantage that diesel cars enjoyed over petrol cars is likely to further diminish. To begin with, the end of the subsidy regime already meant that the advantage that diesel cars enjoyed no longer existed. The VW case could only serve to narrow that advantage even further. This will have long term implications for the product mix of companies like Tata Motors and M&M, who rely predominantly on diesel cars in their product portfolio. This mix may see a change in the coming years.

Stricter emission norms…

While emissions norms are quite strict, the implementation and audit is open to many loopholes. We saw in the case of VW that a company of that size and reach could easily manipulate the entire process of emission testing and certification. The outcome could be higher compliance costs for diesel car markets. There may be more stringent norms for emissions testing and certification. Also the levels of detailing and audit that diesel cars need to go through could become more stringent and time consuming. All this could lead to a sharp increase in compliance costs for auto companies making diesel cars. This may mean that the cost advantage that diesel cars enjoyed may not exist any longer.

Shift to eco-friendly cars…

When Elon Musk first conceived the idea of battery operated cars, nobody gave him a great chance. Today it is one of the most valuable auto makers in the world and as close to viable mass manufacturing as ever. The VW crisis is likely to drive more investments by auto makers into eco-friendly cars. This may either be necessitated by business considerations or under government pressure. Either ways the shift to eco-friendly cars seems to be here to stay.

More importantly, we may see more investments in eco-friendly automobile ideas as well as taking eco-friendly cars from the stage of concept to mass manufacturing. Like in the case of solar energy and wind energy, a sharp fall in the price of equipment will go a long way in making this a reality.

The Volkswagen effect may be a lot more complicated than it appears at this point of time. The issue is not about VW alone. It is about the future of diesel cars, the future of auto portfolio mix and also the future of eco-friendly cars. All this may change drastically, thanks to VW. It will be for the better. ©

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