Volkswagen has just unveiled the Ameo, a compact sedan designed specifically for the India market. Debuted on February 2 and showcased the day after at Auto Expo 2016 in New Delhi, the Ameo could be a game-changer for Volkswagen in India as well as in other small-car dominated markets.VW-Ameo-2

VW-Polo-Sedan-Philippines1
Volkswagen Polo sedan

Based on their popular Polo sedan but with a notchback trunk to trim overall length down to less than 4 meters, the Ameo features either a 1.2L petrol engine with multi-point injection or a 1.5L TDI diesel. Those key specs put the Ameo, unlike the full sized Polo sedan on which it is based, in India’s small car category for preferential 12% excise tax rates. The sedan is an intuitively up-market form-factor compared to tiny-trunked though sporty-looking hatchbacks that otherwise dominate the roads. And premium brand Volkswagen has managed to put a short sedan in a pricing sweet spot for India where 72% of last year’s over 2 million vehicles sold we’re in the small car category.

Judging by Toyota’s reaction, a game changer

The tax benefits redounding to lower price points are significant since the next bracket, the one in which the longer Polo sedan belongs, jacks excise up drastically to 20%. The wide spread in tax rates is significant enough to have prompted world leader Toyota, as reported by Motorbeam.com last year, to ask the Indian government to remove tax breaks for sub-4 meter vehicles. Their argument: the regulations in India give automakers less opportunity for exports. The claim appears self-serving considering that Toyota itself doesn’t have a sub-4 meter sedan to offer and, observers reckon, is still three years from rolling out a model that they’re currently developing for this category.

suzuki swift dzire
Suzuki DZire notchback sedan

Moreover, Toyota’s justification using the export buzzword is rebutted by the performance of Maruti Suzuki, the Indian-Japanese joint-venture that’s the long-standing market leader in India with 45% market share by year-end 2015 (peaking at 50% mid-year). Their top-selling Swift sub-compact hatchback and Swift DZire sub-4 meter sedan have found good market even here where 1.2L petrol-engine variants subsequently introduced by Suzuki Philippines (thereby quietly introducing India’s sub-4 meter category to the country) contributed to their turning in top growth numbers for 2015. Even while the Philippine market showed growth biased towards light commercial vehicles, Suzuki saw a 52% increase in year-on-year sales with 2015 deliveries coming mainly from their mini and sub-compact passenger cars line up (see our story, “Suzuki Philippines is 2015 growth leader with passenger car sales that defy trend for light commercial vehicles”). The Indian government has not granted Toyota’s request.

Toyota-Etios-Liva
Toyota Etios Liva hatchback

Latest 2015 figures put Volkswagen in close second place to Toyota globally, the former’s 9.93 million in unit sales already at 98% of the latter’s 10.08 million. But the   German brand is a relative newcomer to India where it has just a 2% market share to show against Toyota’s 6.5%. This is the one market where it could tap game-changing growth. Now, with the Ameo set to roll out of showrooms by mid-year 2016, Volkswagen will be fielding both the new sub-4 sedan and their Polo hatchback against the Etios Liva, also a hatch and Toyota’s one and only model in India’s small car category until they roll out their short sedan in 2018. It’s an open field where number two Volkswagen can double team number one Toyota, and in a game that could spill over into other territories.

Indian economies of scale bring de-facto Philippine tax breaks

Unlike the specific taxation behind the 4-meter length and small-engine displacement limits of India for a preferential 12% rate, the Philippines uses an ad valorem structure that levies increasing rates on escalating portions of a vehicle’s import or production cost. For Philippine excise taxes on motor vehicles, 2% is used for the first P600K. If the vehicle costs more than P600K, 20% is used for the next P500K. If the cost is more than the P1.1M of the two lower brackets combined, 40% is used for the next P1.0M. If the cost is even more than the P2.1M of the three brackets combined, 60% is used on the excess. These actually depict a lower tax burden than in India. Excise taxes would hit the 12% equivalent of India’s small car category only when those costs approach P1.2M each.

VW-Ameo-5In the Philippine tax environment, it was Suzuki that pioneered a niche for India-market notchbacks that, at the very least, minimizes excise tax. What Suzuki Philippines broke into was a pricing niche for small hatchbacks and sedans that tops off just above that recurring P600K mark. The Swift hatchback 1.2L and Swift DZire 1.2L notchback they brought in (both with engines curiously downsized from the original 1.4L with which the popular Swift was first launched and is still retained in an up-range variant) are obviously like the Volkswagen Ameo—specially configured to fit India’s small car category.

While these do not benefit from any particular Philippine tax break, the specially configured variants do come from having Indian tax incentives that result in sales volumes which keep prices down by sheer economies of scale. Other words, it’s the pricing that’s kept low by successful India sales that get these vehicles the Philippine equivalent of a tax break. It’s like getting hotcakes at half price because neighbors already got things discounted with a large, wholesale purchase.

Philippine niche for India-market notchbacks

The result: P638K for the Swift 1.2L M/T hatchback with P111K savings off the original variant mounting a 1.4L engine (which doesn’t fit India’s small car profile), and an even lower P568K for the Swift DZire 1.2L M/T short sedan which has no other engine option but the one that keeps it in the sub-4 meter category. At prices that stay near or under the P600K SRP level even after covering ship-in costs and mark-ups, excise tax rates are kept down at the lowest 2%, nearly eliminating the bloat it otherwise could put on the list price.

Honda Brio Amaze notchback sedan
Honda Brio Amaze notchback sedan

The situation has created an opportunity for other carmakers, later entrants, also willing to engineer products for the sub-4 meter category (instead of lobbying to abolish its tax benefits). Honda’s Brio Amaze notchback sedan was introduced in India with a 1.2L petrol engine, keeping it in the sub-4 meter category and pitting it against the top-selling Swift DZire 1.2L. By most accounts, Honda’s notchback has been showing well.

brio amaze 2Subsequently, in 2014, Honda Philippines brought over the Brio Amaze, although with a larger 1.3L i-VTEC engine, focusing on performance despite causing a departure from the 1.2L engine that had gotten it a tax break in India. Nevertheless, volumes on the components common to the India- and Philippine-spec models appear to let Honda hit that pricing sweetspot with an SRP of just P629K for the basic E variant with manual gearbox. And if they choose to bring in the 1.2L variant later, like Suzuki did, this could introduce another, significantly lower price-point, like it had for Suzuki.

Point is, India-market notchbacks are already in the Philippines, have been here for several years already, even if the market hasn’t perceived these as such but rather as rakish sedans with trunks truncated for sporty aesthetics. And now, with premium German brand Volkswagen having reworked and shortened their popular Polo sedan to become an India-market notchback, the niche has transcended the esoteric, been made overt and apparent by the world’s second largest marque gunning for top spot.

Another notchback for the Philippine mix?

Volkswagen will be pricing the Ameo very competitively for the Indian market. Ex-showroom prices in India ranging from the equivalent of P422K to P562K have been reported.

VW-Ameo-3Philippine-spec vehicles are typically priced at around 150% of the Indian counterpart models, whether sourced from India or off-shore suppliers. This means that if the opportunities prove compelling enough both for Volkswagen global and Volkswagen Philippines alike, they could bring in the Ameo at an offer price starting at P633K.

That’s a surprising notional SRP for an up-market city-sized short-sedan complete with modern staples such as a full-fledged infotainment system, power windows and locks, rearview camera, cruise control, dual airbags, ABS and electronic stability control. A surprising price particularly for a Volkswagen that’s acclimatized for the Philippines with what looks like the same high, 170mm ground clearance of the Suzuki Swift hatchbacks and sedans for negotiating the rough inter-city roads and high speed-bumps in India. A surprising price for Volkswagen with their current lowest priced model, the Polo sedan 1.6L A/T listed P200K higher at P840K. A surprising price for the recently returned European Volkswagen marque that’s premium enough to command a P4.29M price for its SUV top Touareg model. Basically, that notional P633K for the new Ameo is a surprising price for a Volkswagen, period.

Toyota Vios sub-compact sedan
Toyota Vios sub-compact sedan

Still, it’s just a notion. But think of how a P633K Volkswagen Ameo can upset the status quo not only in its role evolved for India where driving conditions are apparently worse and more diverse than in the Philippines, but also in a market other than India where arch rival Toyota doesn’t have a counterpart model and instead has the Vios sedan as the closest thing to one.

VW-Ameo-6The Vios, Toyota Philippines’ best-selling model showcased for its track-ready handling in much publicized one-make races, with its near single-minded focus on a ground-hugging ride having committed it to the low, 147mm of ground clearance that causes the occasional underbody scrapes even with just two on board. And lastly, the slightly larger, sub-compact Vios sedan with its less finely trimmed 1.3L J M/T base variant selling for a near-equivalent P630K.

VW-Ameo-4Having spotlighted the India-market notchbacks already in the Philippines and their unique draw amongst region-wide third-world sensibilities, the Ameo should be coming to Volkswagen Philippines showrooms, and coming soon.   This is too good an opportunity, even for Volkswagen global, to pass up.

VW-Ameo-front-quarter-press

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2 thoughts on “Volkswagen launches Ameo, spotlights India-market notchbacks significant even in the Philippines

  1. Anybody else vaguely remember an obscure Michael Keaton comedy from 1986 titled “Gung Ho”?
    Had to dig through IMDB for that title. Anyways, I think I finally found the true story that inspired it:

    [audio src="http://audio.thisamericanlife.org/561/561.mp3" /]

    Exclusively for motorgeeks only.

    Like

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