BT Explainer: Why Volkswagen Group plans to axe 12% of its workforce in India

Volkswagen Group’s local unit Skoda Auto Volkswagen India Pvt Ltd is reportedly planning to lay off 12% of its workforce in order to cut costs.

The restructuring is expected to affect a few hundred white-collar and shop floor jobs by 2027, Bloomberg reported.

The layoffs come at a time when German auto giant Volkswagen is planning to axe as many ‌as 100,000 jobs and shut down four factories in Germany amid increasing competition from Chinese carmakers. To slash costs, the Volkswagen Group has been downsizing workforce to reach an annual net cost savings of over 6 billion euros by 2030. The VW Group had announced 50,000 job cuts at Volkswagen, Audi, Porsche and its software subsidiary CARIAD.

In India, Skoda Auto Volkswagen India Pvt Ltd, which spearheads Volkswagen Group’s India strategy, is hunting for a local partner.

A possible deal with steel-to-cement conglomerate JSW Group is expected to give the German automaker an investment risk partner in a market where it has faced fierce competition for a long time.

Volkswagen’s sub-brand Skoda entered the Indian market in 2001. Despite being in India for over two and a half decades, the carmaker has struggled to make inroads in the world’s third-largest passenger vehicle market by volume. It accounts for roughly 2% share of India’s passenger vehicle market, much lower compared to Japanese and Korean rivals. In comparison, Kia India, which began selling cars in India in 2019, accounts for 6% share.

The beleaguered automaker is already battling a tax demand of $1.4 billion raised by Central Board of Indirect Taxes and Customs (CBIC).

Skoda Auto Volkswagen India is locked in a legal battle with India’s tax authorities over allegations that it misclassified imports of certain Audi, Volkswagen and Skoda cars to avoid higher duties.

On August 25, India Today reported that the Bombay High Court will re-hear Volkswagen’s $1.4 billion (around Rs 11,526 crore) customs tax dispute from scratch after the bench that had reserved its judgment nearly 18 months ago released the case, citing its workload and inability to deliver the verdict within the prescribed timeline.

Customs authorities have accused Volkswagen of importing vehicle components separately in order to benefit from lower customs duties, despite the parts allegedly amounting to Complete Knocked Down (CKD) kits intended for vehicle assembly. Imports classified as CKD kits can attract customs duties ranging from 30% to 60%.
The authorities have further alleged that Volkswagen used software to distribute orders for vehicle components among suppliers across various countries. According to the allegations, this arrangement enabled the company to avoid the higher customs duty imposed on CKD kits.

The claims came to light as part of an investigation by the Directorate of Revenue Intelligence (DRI). Officials reportedly found that Volkswagen’s Aurangabad facility was performing basic vehicle assembly using imported kits.
Volkswagen has rejected the allegations. Representing the company, Senior Advocate Arvind Datar contended that the tax authorities had issued the show-cause notice after an excessive delay, rendering it time-barred.