Skoda Auto: the Story of the Ugly Duckling

It is no secret that the Czech Republic’s biggest car maker Skoda Auto has been in the past - a laughing stock in the automotive world. But things are finally turning around for the automaker and right now it has become a profit producing force for its owner Volkswagen.

The Czech Republic’s biggest car maker is also planning to open up new markets in China, India, and Russia. Skoda Auto was bought by Volkswagen in the year 1991 and become one of the forces behind the latter’s global force. And as part of Europe’s largest automaker, Skoda Auto makes use of quality Volkswagen auto parts for its production like the popular Volkswagen spark plug wires.

Skoda Auto was able to record net profits for the last week of 2006 totaling to 11.06 billion koruna or 392 million euros (515 million dollars). It obtained a 40% increase as compared to its earnings in the previous year.

Skoda Auto’s production also increased by 12.6 percent or 556,347 units with successful deliveries of up 11.7 percent resulting to an overall sales increase of 8.7 percent to 203.7 billion koruna. For this year, Europe’s largest automaker Volkswagen owner of Skoda is expecting for it to produce more than 600,000 cars.

According to Marc-Rene Tonn an analyst from German bank MM Warburg and Co., ”Skoda is an extremely profitable part of the Volkswagen Group.” He also stressed that about one in every 10 Volkswagen Group cars are produced in the Czech Republic especially those sold in the year 2005. This was seconded by Stephen Pope, a London-based analyst with financial services group Cantor Fitzgerald Europe, “Volkswagen will rely heavily on Audi and Skoda during this current period.” Since he said that the Europe’s largest automaker is currently struggling with an ageing range of models and it needs new launches to revive it. “The whole new image of Skoda has changed. It is no longer taken as a joke and is now seen as a pure derivative of Volkswagen, but much more reasonably priced.”

Pope also added that this simply shows the remarkable development that Skoda Auto has achieved under the management of Volkswagen for the past 15 years as part of the VW Group. Praises also to Volkswagen for being steadfast in its decision not to scrap the Skoda brand in spite of the not so good image that the brand has in Western Europe (DaimlerChrysler could used some advice from Volkswagen).

The turning of the Skoda into one of Volkswagen’s flagship producer of reasonably priced reliable cars just goes to show the effective management style that Europe’s largest automaker have. And today, Volkswagen is leading Skoda to become its low-cost spearhead into the booming economies of China, India, and Russia without damaging along the way it attempts to target a more prestige market.

Pope also said that “Skoda will be designated as the entry level car with the premium part of the market left for Volkswagen.”

The boss of Skoda Detlef Wittig has announced last week the company’s goal of producing low-cost car for the Asian market, mentioning also that the company plans of opening up markets in India, Russia, and China. The low-cost Fabia and the top-of-the-range Superb are scheduled to be produced for China in partnership with Shanghai Volkswagen. Likewise, launches production of the mid-range Octavia model are set for China this year.

The Czech automaker has already car assembly and production projects in Ukraine, Russia, Kazakhstan, Bosnia, and India. Current models lined up for production includes the mid-range Roomster which will complete the current four model range and the three-door sporty vehicle called the Skoda Joyster which is designed for young buyers.