Skodas do not make the average car buyer’s heart race – nor are they meant to.
Volkswagen’s Czech value brand has built a business model around solid, functional vehicles seen as offering excellent value for money, such as its Octavia saloon, Fabia small car and Yeti sport utility vehicle.
But Skoda is building a global franchise. It is capitalising on a thrifty zeitgeist in western Europe, while capturing new buyers in Russia, India and China, where its customers – many of whom have chauffeurs and sit in the back – like their roomy interiors.
Now Skoda’s chief executive says he wants to make it Europe’s fastest-expanding car marque, at a time when most of its competitors are struggling to sell cars and stay profitable.
“We are a volume player and we want to be a major volume player,” Winfried Vahland tells the Financial Times. “Skoda has the potential to be the fastest-growing brand in Europe.”
Mr Vahland says that despite an uncertain economic climate, Skoda might achieve its goal to sell 1.5m vehicles globally by 2018 ahead of schedule – part of VW’s plan to overtake Japan’s Toyota as the industry’s biggest seller.
Skoda aims to do this by appealing to more young and first-time buyers with new cars such as the Citigo, the brand’s lower-priced variant of VW’s Up! city car, which will premiere at this week’s Geneva car show. Following on the success of the Yeti, Mr Vahland says, Skoda is also considering developing a larger SUV.
The Czech carmaker is rejuvenating its dealerships with fresher, cleaner designs.
While other European producers are offering deep discounts to sell their vehicles, Skoda has waiting lists for the Octavia and the Yeti. The brand’s worldwide sales surged 15 per cent to 879,200 last year.
That bargain-priced cars are selling well in volatile economic times is not surprising. South Korea’s Hyundai Motor/Kia and General Motors’ Chevrolet value brand are reporting record sales too.
Further down market, Renault’s Romanian Dacia entry-level brand, which sells its cars in many developing countries under its French owner’s marque, is expanding globally.
In Geneva Dacia will unveil the Lodgy, a low-priced people-carrier with which it hopes to undercut rival offerings from brands such as Ford Motor and Citroën.
Yet bargain car brands are, alongside premium marques such as BMW and Audi, the global car industry’s most profitable segment.
In a sector that subsists on thin margins, Skoda earned a 5 per cent operating profit in 2010 and will show it did “considerably better” in 2011, says Mr Vahland, when it reports results later this month. Alongside Audi and the truckmaker Scania, it is one of the chief contributors to VW’s profits.
For Renault, Dacia last year earned a margin well above the company’s target of 6 per cent.
“The entry range is certainly the most profitable in the industry today,” Carlos Ghosn, Renault’s chief executive, said last month.
Skoda dislikes the word “cheap” and rejects direct comparisons with Dacia’s stripped-down, lower-priced vehicles.
Christoph Stürmer, analyst with IHS Global Insight, says: “Skoda is good value and Dacia is dead cheap.”
Still, VW and Renault’s profitable eastern European value brands deserve side-by-side scrutiny at a time when the continent’s car industry is heading into a serious crisis.
Why are cheap cars such good business? For one, both marques are staying above the fray in Europe’s ruinous price war. Skoda sells most of its cars to private buyers, not fleets and rental companies, where competitive discounting is most intense.
Dacia flatly refuses to offer discounts – a rarity in the car industry. “The dealer doesn’t spend time trying to negotiate, so you save money on the customer and the dealer – you save twice,” explains Arnaud Deboeuf, who heads Renault’s entry-level vehicle programme.
Both brands have short supply chains and low labour costs. Skoda’s are about a quarter of the level of VW’s in Germany.
Its operation in Mlada Boleslav, near Prague, is vertically integrated, stamping steel, building engines and even forging some metal parts on site. Dacia makes its flagship Logan in Romania and locally in seven developing countries.
Skoda and Dacia plan their products conservatively, shunning risky niche vehicles such as convertibles that might lose money.
Renault demands that suppliers design parts to cost and eliminates non-essential features in its entry-level cars. Instead of offering an air conditioning system engineered to attain a specific temperature, Dacia’s has a simple on/off switch.
Skoda, too, is never first to offer the latest technology, but picks them when the costs come down. Some versions of its top-of-range Superb have LED light features commonly seen on premium models.
However, as the Czech brand aims for an edgier image and better-equipped cars, Skoda vows it will stay true to its roots.
“If we speak about our customers,” says Mr Vahland, “they like practicality, functionality, roominess – (so) a cabrio doesn’t come to mind.”
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