Potential reduction in quality of future Skoda cars

[Lady Penelope]

Czech Headache

Skoda Spells Trouble for Parent Company Volkswagen

By Dietmar Hawranek

Skoda's cars are now competing directly with VW's models.

German auto giant Volkswagen is having trouble with its subsidiary Skoda. Not only are profits down at the Czech-based automaker, but its cars are now competing directly with VW models -- and in some cases are beating them in road tests.

There are some mistakes that you only make once. Reinhard Jung, chairman of Volkswagen's subsidiary Skoda, recently made such a slip at the Geneva Motor Show.

Several dozen spotlights and cameras were aimed at the executive when he stepped onto the stage on Tuesday of last week. Volkswagen CEO Martin Winterkorn and Ferdinand Piëch, the powerful head of VW's supervisory board, were sitting in the first row. Then Jung said: "I would like to welcome, in particular, the chairman of the supervisory board of the VW Group, Professor Dr. Ferdinand Porsche."

The slip of the tongue is unlikely to have gone down well with Ferdinand Piëch. The Porsche and Piëch families -- which are both descended from the legendary German automotive pioneer Ferdinand Porsche -- have been involved in a dynastic feud for decades over control of the car companies Volkswagen and Porsche.

Jung will not have an opportunity to repeat his gaffe: The 59-year-old executive is being sent into retirement this fall.

The news of Jung's departure was leaked several weeks ago. Otherwise, some observers would surely have said that Piëch was merely exacting his revenge for the Skoda chairman's slip of the tongue. Instead, Piëch merely smiled mildly at Jung's blunder.

Direct Competition

The real reason for Jung's departure is that the Czech VW subsidiary is no longer performing the function it was meant to perform within the VW Group, which was to sell inexpensive, entry-level cars. Instead, Skoda models are increasingly competing directly with their sister autos from VW. Even worse, in some cases the Skoda models are winning out over their German counterparts.

VW CEO Martin Winterkorn was furious when the Skoda Superb large family car won a comparison test against VW's Passat in the influential German automotive magazine Auto Bild. The magazine wrote that the Superb "simply offers more for the money -- a lot more features, and even more space." And when it came to quality, the testers found that there was "hardly any difference" between the Skoda and VW models. This isn't surprising. Skoda uses VW technology, but it also equips its models with classy details such as 17-inch instead of 16-inch wheels, as well as leather, wood and chrome-plated fixtures in its interiors. (Lady penelope wonders -are these going to go...?)

The Czech carmaker has always set its sights high. During the Cold War, Skoda was the top brand among Eastern European automakers. VW acquired the company in 1991. For several years now, Skoda has been trying to fight its way upward within the group hierarchy, while managing to keep prices low. The Superb, for example, is a few thousand euros cheaper than a comparable Passat.

Skoda's attack doesn't just affect the Volkswagen brand and its two most important models, the Passat and the Golf. It also harms the entire group, because Skoda doesn't make enough profits to offset potential losses at Volkswagen. On the contrary, Skoda's profits are melting away (see graphic).

Increasing Costs

The Czech koruna is causing problems for Skoda. As the national currency rises against the euro, production becomes more expensive in the Czech Republic. At the same time, Skoda has significantly increased the wages of its employees, thereby reducing the pay divide between itself and Volkswagen. And in the midst of the economic crisis, Skoda is suffering because its factories are far less flexible than Volkswagen's plants in Germany. While sharp declines in orders can be offset in Germany with so-called working time accounts (an instrument used by German companies to buffer the effects of a downturn whereby workers can accumulate surplus working hours during busy times and then take time off when business is slow), Skoda has had to lay off workers.

In an internal comparison of factories within the VW group, the plants in the Czech Republic haven't come out on top for a long time. Although quality is good, costs at the Czech plants are now relatively high. For this reason, a new family of small cars that the group is planning will not be built in the Czech Republic, but at the VW plant in Bratislava, Slovakia.

The Czech carmaker's problems illustrate the growing difficulties of running the VW Group, which has mushroomed to gigantic proportions in recent years.

Winterkorn's job involves managing eight automobile brands (Volkswagen, Audi, Skoda, Seat, Bentley, Bugatti, Lamborghini and Porsche) and convincing three truck manufacturers (VW Commercial Vehicles, Scania and MAN) to work together.

Balancing Act

The group CEO's job is a balancing act. On the one hand, he must provide the CEOs of the individual brands with enough freedom to allow them to grow their businesses. On the other hand, he cannot allow this to happen at the expense of the other subsidiaries. And if this weren't complicated enough, Suzuki has now been added to the mix after VW acquired a 20-percent stake in the Japanese small-car specialist.

At Skoda, Winterkorn is radically changing course, with the goal of bringing down costs and coordinating the model lineup more effectively with Volkswagen.

The successor for the Skoda Superb will likely be significantly smaller than the current model, and it will not feature as much leather in its interior.

And one other thing is certain: Winfried Vahland, Skoda's future chairman, will be able to get Ferdinand Piëch's name right.

Translated from the German by Christopher Sultan

For graphs and pictures see web page:

http://www.spiegel.de/international/business/0,1518,682530,00.html

[RapidRonnie]

Interesting read, but I think this could be a storm in a teacup. Skoda still made a profit last year despite the financial crisis and sales are rising. If Skoda are making better cars than VW shouldn't VW be stepping up their game rather than penalising Skoda?

Probably a bigger problem for VW is SEAT who have struggled for profitability in recent years.

Maybe they should stop thinking about whether the brands within the group taking sales from one another and that any VW Group sale is a sale to them and not the opposition?

Edited 11 March, 2010 by OctaviaT81

[Lady Penelope]

... If Skoda are making better cars than VW shouldn't VW be stepping up their game rather than penalising Skoda?...

Spoken like a true entrepreneur! and I couldn't agree more :yes:

But I guess VW is "The Boss" and internal politics could destroy our beloved Skodas quality :'(

But lets hope not...one to keep your eyes on!

[Harvey1512]

Interesting article. To be fair the comparison between Passat and Superb is a little harsh as the Passat is outdated and old and the Superb is brand new. I believe the Passat is getting a total overhaul this year and that may push it forwards again. (this does not mean it will automatically be superior to the Superb which is still a very fine car).

It is an interesting situation where a company is trying to position various brands within a group but one group steps out of line and challenges the Alpha male (have I been watching too much of Monkey Island on Ch5?). A good case study for University students. It may be that VW have to rein in some of the grandiose plans of Skoda but I would have thought that the Fabia, Octavia, Roomster, and Yeti all sit just under the VW alternatives in terms of cost and target market. I think they supplement the VW versions very well and once the new Passat is out then that and the Superb should also do the same. I agree that the key for VW is to up its game, not bring down Skoda's.

[NGee]

...I agree that the key for VW is to up its game, not bring down Skoda's.

But this will only put pressure on the Audi brand, surely. And Audi probably can't become more expensive and upmarket without losing out to BMW, Mecedes, Lexus and even Jaguar.

I can see how this must be a real problem for the group. It was once fairly straightforward - Skoda was "basic" with the emphasis on value, VW was the middle player with both more quality than Skoda and more value that Audi, and Audi was the premium brand.

Now it feels to me that Skoda and VW are very nearly interchangeable. Indeed, in many cases the Skoda offering is actually better than the VW "equivalent".

Take for instance, the Octavia and the Golf - the Octavia is bigger, as comfortable, as well equipped. They share the same electrics, engines etc. The only difference should be the quality of the finish and the design. But the difference is actually fairly slight. But the Octavia is quite a bit cheaper. The Fabia and the Superb present even better quality of finish etc, and are (I think) well up to the standard VW.

My first sit in a Yeti was in a Elegance 140tdi. My first impression was that the quality of the interior was exceptionally good - probably the best Skoda interior yet. Okay, so the Yeti is "expensive" for the Skoda range, but it is at least as good as anything VW are putting out.

The real mystery is where Seat are supposed to fit in - I can't see any obvious place for them.

Perhaps Seat should be the "entry level", with Skoda doing the smaller (Fabic) and more niche (Yeti, Roomster) stuff, VW simplify their range (drop the Fox, Tiguan, Eos etc) to make only high-profit "aspirational" cars (Gold, Corrado), and leave Audi to do the "sports" and "executive" range? Competition between common brands never ends well.

[HKPhooey]

I think VW and Audi need to take a reality check - their products are over priced/under spec'd what ever you compare them with.

Two examples that I spotted recently:

VW Tiguan 1.4 2wd SE, £22k - dual zone climate, cruise control and multi function wheel are all cost options.

Audi R8 Spyder £111k - Cruise control and parking sensors are optional extras.

And VAG wonder why I chose the Yeti over a Golf.

[BillScarab]

VAG would have to be mad to reduce the quality of Skodas. I can see them reducing the kit levels and making them more basic, aas they used to be, but not reducing the build quality.

As for SEAT I seem to recall theat they were supposed to be a more sporty, youthful brand than Skoda. So Skoda and SEAT were both cheaper than VW but Skoda appealed more to family buyers and SEAT to younger, single buyers.

It seems to me that VAG are getting themselves into a similar situation that BL got into with lots of brands that are atcually competing with each other. However there are still plenty of buyers who won't contemplate a Skoda or SEAT so VAG will proably come out of it OK. As an example I have a colleague who is choosing a new company car and wants a large-ish family car. He's looking at BMW 3 series estate, C Class estates and A4 estates. I suggested a Superb estate or even an Octavia estate but he won't even entertain the idea. More fool him I say.

[shrub]

VAG would have to be mad to reduce the quality of Skodas. I can see them reducing the kit levels and making them more basic, aas they used to be, but not reducing the build quality.

I think that you are right Bill. The build quality of Skoda cars would not be affected, only the luxury / trim level. Skoda deservedly occupy a high position within reliability and ownership surveys and this will not be something that VW will surrender. Skoda didn't reach the top of these surveys by making highly refined and luxuriously trimmed cars; it is their solidity, reliability and 'completeness' as a product that won fans. VW will not do anything to compromise the good name that Skoda has built up whether it moves the cars down market or not.

Incidentally, I was under the impression that the VW involvement with Suzuki was to fulfill the needs of the budget sector in developing markets. Seat was often described by insiders at VW as a rival for Alfa Romeo. This had started to take shape with the first generation Leon but went a little wrong when they brought out a range of cars that all looked like people carriers from Mars. Oh well, let us wait for the new Estelle. Rear wheel drive again anyone?

[GentleGiant]

Oh well, let us wait for the new Estelle. Rear wheel drive again anyone?

As long as it does more than 40mph without overheating!!

(My Nan loved my granddads Rapide, it couldn't do more than 40 without blowing steam everywhere!!

[Krooked]

I think VW and Audi need to take a reality check - their products are over priced/under spec'd what ever you compare them with.

Two examples that I spotted recently:

VW Tiguan 1.4 2wd SE, £22k - dual zone climate, cruise control and multi function wheel are all cost options.

And VAG wonder why I chose the Yeti over a Golf.

spot on HKPhooey. I really wanted a Tiguan, but it was expensive, very poorly equipped and uneconomical. Most i could get out of a 2.0 TDI SE Auto Tiguan was 37 mpg.

The quality of VW and Audi has simply been caught with not just by Skoda. Honda for example has long ago caught up with VW, and offer far more kit and to some degree exclusivity in comparison.

VW and Audi are poorly equipping their vehicles (copying BMW) and pricing them unrealistically high (erm just like BMW) - but with one fatal flaw. None of their cars like drive like BMW's!!! or in most cases as enconomical.

[shrub]

The quality of VW and Audi has simply been caught with not just by Skoda. Honda for example has long ago caught up with VW, and offer far more kit and to some degree exclusivity in comparison.

Have to respectfully disagree with you on that one Krooked. I used to work for Volvo, Honda and Volkswagen. Honda were undoubtedly the most reliable and if that is what you mean by quality (and many do) then ok. I think of that as quality of manufacture / assembly. In terms of the quality of the materials out of which the cars are made I would rank Honda very low in comparison. Ok so they look fine on the surface and they don't often break down which is great and many people will drive them happily for ever more. Having looked at the cars stripped bear in the workshop there is a shocking difference under the skin in terms of solidity and sheer engineering depth to VW, Audi and indeed Volvo in comparison to the Japanese. If only VW could sort out some of their quality control issues with regards to assembly the Japanese wouldn't get a look in. Also bear in mind that a lot of Japanese cars do very well in ownership surveys because they are, by and large, owned by the more mature driver. As someone who has studied these surveys, I have to say that an older driver will often have lower expectations regarding e.g. the outright handling of their e.g. Toyota Starlet than someone in their thirties talking about their Audi TT Quattro. Of course you and I know that there is no contest between the two but these surveys look at the marks scored by the respective owners and publish the results accordingly.

[RapidRonnie]

I wonder whether the bosses at VAG have considered that if they "downgrade" Skoda, loyal Skoda customers might go elsewhere and not into other VAG vehicles and they might lose them as customers altogether?

I could probably live with an Audi, but.....

[Ootohere]

A bit of a thread revival.

 

Plenty knew they were at it, more spin than substance, and it came to pass that they were liars and cheats, 

or 'knew nothing', because they never asked.

The Engineers Engineer knew plenty though.

http://bbc.co.uk/news/business-36578506

Edited 21 June, 2016 by GoneOffSKi

[Totally Square]

A bit of a thread revival.

Indeed. 6 yrs on and VW is probably still moaning about the competitiveness of its siblings. But as they say - better for you to be be your biggest competitor than someone else!

[logiclee]

So the new Superb was supposed to be smaller, with less leather and lower spec.

 

How wrong they were.

 

Lee

[VAGCF]

I don't know about beating the Passat in a comparison the new one would give the Audi A6 a run for its money!

The earlier postings are very interesting and I totally agree about the way that Skodas have improved in quality in recent years.

My last Passat was a 59 plate and on a trip to Ireland I hired an Octavia. The trim and the way it drove was definitely a step down from the Passat.

Apart from the odd creak and rattle I'm very impressed with the interior of the Yeti and it still feels quality even when stepping from Audis and VWs into it.

Also, as we've said elsewhere I think that VWG do have a problem with the overlap in certain model segments.

[logiclee]

The MK2 Octavia is definitly a step down from the Passat. I owned both for a time. But the Octavia MK2 was a Golf with a big boot and cheaper interior. It was intended to be a budget Golf with more boot space and never intended to challenge the significantly more expensive and larger Passat.

The Mk3 Octavia is a different prospect though as it's modular chassis allows it to be significantly bigger than the Golf and it has moved up market. I can see it pinching Passat customers.

Edited 21 June, 2016 by logiclee