Skoda Auto Volkswagen India has decided to shut down production from mid-December to mid-January, a second month-long 'no production' period is unprecedented in the Indian auto sector. The European auto major had shut its plant down for a month from mid-October to mid-November.

With its India 2.0 project another 18 months away, Volkswagen brand is in for prolonged pain. Its export markets are slowing down, domestic volumes at a decade low and discontinuation of diesel and Ameo sedan is expected to pull down the brand to a new low.

As against the plan of delivering volumes of close to 100,000 units, Skoda Auto Volkswagen (formerly Volkswagen India) is likely fall short of its annual target by 15% in 2019 to 85000 units (production) said several people in the know of the company's plans.

"With its modular MQB architecture being implemented in more markets around the world, the demand for Indian products, which are based on the old generation PQ25, has been gradually going down. The low offtake in the domestic market in not helping either. There is a pressure to install the MQB line in India at the earliest to align with global production," said one of the five people in the know of the company's plan.

This prolonged shut down happens at a time when the Indian passenger vehicle market is witnessing it's steepest decline in sales in the last two decades. While overall exports so far this year has remained in green with 3% increase, Volkswagen India has seen its shipment fall 11% from April to October of financial year 2019-20.

The plan is to move to a new generation MQB line by 17th Week of 2020 in order to be ready for the future, added another person who is aware of the company's plans and this shut down may be in sync with the shift planned.

An email sent to Volkswagen India's brand team that oversees sales and marketing did not elicit any response. A ?koda Auto Volkswagen India Private Limited spokesperson said the company is preparing for the next generation of products within the India 2.0 project.

"Several upgrades are in progress at our facilities to accommodate changes in the production lines for MQB A0 IN platform. We are systematically planning our non-production days to sustainably meet our customer deliveries without any delay," added the spokesperson.

Tata Motors was the only other automaker that had shut down its Sanand plant for little over a month to prepare the Nano plant to manufacture vehicles like Tiago and Tigor in its Gujarat factory in 2014.

A daily also learnt that earlier this month, the company had stopped production of Ameo sub-4 metre sedan which Europe's largest carmaker had categorically built for India and the group is already running late to upgrade its mass-market models - Polo, Vento and Rapid for BS-VI. Not all engine options may be available immediately from 1st of April 2020.

With the portfolio of 4-5 cars, Volkswagen's monthly sales have dropped to an average of 2500 units. In a market that has declined 15% in January to October of 2019, Volkswagen India registered a steeper decline of 18% to about 25000.

The company had invested specifically for sub-4 metre vehicle for India and also for diesel engine localisation, the end of life for both the car and diesel engine within 4-5 years will have an impact on return on investment and the company will be compelled to write them off.

The drop in sales in Mexico has hit production the hardest for Volkswagen in India. Mexico is the biggest overseas market for Volkswagen India, with sales falling significantly in the Central American market, there isn't any plan B in place.

The exports to Mexico had so far kept the manufacturing operation viable, supporting the company to keep its sales and marketing function competitive. With annual production almost halving, the pressure to keep the business operation viable is mounting for the company.