Skoda’s success causes VW Group rethink

The Kodiaq is yet another success for Skoda.

A few months back, we blogged about Skoda’s record-breaking year, with the company posting a 7.6% increase on 2015. In fact, according to a recent article in Reuters, “Skoda’s operating profit more than doubled over three years to 1.2 billion euros ($1.4 billion) in 2016.”

According to the same authors, Skoda’s level of success is creating an interesting situation within the VW Group. At the same time that the Czech company’s star is rising, their German stablemate Volkswagen is looking to streamline its operations. That could mean job losses at VW. And the German unions have plenty to say about that.

Skoda — unfair competition for VW?

The issue mainly boils down to inequalities in pay between the two countries. On average, Czech manufacturing workers are paid less than a third of their German counterparts. Skodas can therefore be produced more cheaply — and that’s one of the key factors driving their sales. However, much of the technology that VW Group cars share was developed in Germany. Also, Skoda undoubtedly benefit from the parent group’s  size, which allows economies of scale that Skoda could not achieve on its own.

From the VW unions’ point of view, all of this spells unfair competition.

As a result, the unions are pressing VW Group to move some of Skoda’s manufacturing to Germany. They also argue that the Czech company should pay greater royalties for the use of their underlying technology. A prime example is the MQB platform, used in models such as the Skoda Octavia. Further pressure on the VW Group is likely to come from the German state of Lower Saxony, which naturally will be looking to preserve German jobs.

A little competition is no bad thing

But is this competition a problem? VW Group’s brand CEO has stressed that a certain amount of intra-group competition is an inevitability. And for the consumer, it’s no bad thing, as it stimulates innovation. It’s likely to lead to greater choice too, as the marques work to differentiate themselves.

In fact, it’s brand differentiation that will probably resolve this situation. Once this is achieved, there will be less competition for the same customers. Given that the group recently announced that it will be producing 80 new electric vehicles in the next eight years, there would seem to be ample opportunities.

For those of us who remember the Skoda jokes of 25 years ago, it’s amazing to see their transformation into a company that produces class-leading cars at affordable prices, and who now find themselves challenging the ascendancy of mighty Volkswagen.

Whether your vehicle is Skoda, VW, Audi or SEAT (or any other marque), Welsh VW Specialists are here for your MOT, servicing and repair needs. Please get in touch with our friendly team.

With thanks to Reuters for source material.