Skoda has been part of the Volkswagen group for 26 years. It went from being a stagnant brand on the wrong side of the Iron Curtain to one of the strongest performing brands within the group. With an operating margin of 8.7% only Porsche surpasses Skoda, having even surpassed Audi last year. Compare this with the Volkswagen brand's margin of just 1.8%, despite, in absolute terms, selling many more units.
How is it possible?
As part of the German group, Skoda has had virtually unrestricted access to technologies developed by others and places them in cars produced where labor is substantially cheaper – an average of 10.10 euros an hour in the Czech Republic against 38 .70 euros in Germany.The result is products that are little or nothing behind the others in qualitative terms, and even beat their “brothers” in comparisons in the specialized press, a situation that Volkswagen doesn't like at all. Weren't the Skoda supposed to be at the base of the group?
Conclusions such as why buy a Golf when we can have a more spacious Octavia with the same technology for a more affordable price are not new. To top it off, Skoda has also consistently ranked higher in the various known reliability studies.
Now that the group is preparing to enter a new era of electric mobility, Volkswagen wants to reduce Skoda's advantages, considered unfair, and reposition its brands more clearly. A dispute that is not new and revives tensions at the heart of the Volkswagen group – disputes between profits and jobs, and between centralized control and autonomy for its 12 brands.
How to change the situation?
Among the solutions proposed is the increase in the value of royalties to take advantage of the technology developed by the other brands in the group. As an example, access to the MQB platform developed by Volkswagen and which is the basis of practically all of the brand's medium models: Octavia, Superb, Kodiaq and Karoq.
But other threats loom on the horizon. The drop in sales of models like the Golf and Passat threatens jobs in Germany and unions have already expressed their concern. However, the threat of Skoda's success could also mean a solution for German factories.
In other words, transferring part of Skoda's production to German factories – currently with excess capacity – will safeguard German jobs. But the withdrawal of production from Czech factories, on the other hand, calls into question up to 2000 jobs, according to the main Czech union.
Herbert Diess, CEO of the Volkswagen brand argues that steps must be taken to protect the German brand from direct competition with cheaper Skoda models. This requires greater differentiation in the positioning and target audience of both brands, especially when referring to future electric models – for example, both Volkswagen and Skoda are preparing an electric coupé-style crossover for the same segment.
Internal battle – should this be the focus?
As Volkswagen had announced a few months ago, in this new world, its rival is Tesla. Shouldn't that be the focus? Matthias Mueller, the group's CEO, de-dramatized the dispute by noting that with nearly 100 models in the group, it would be impossible not to step on each other. And some internal competition is also healthy.
But will not harming one brand of the group against another end up harming the entire group? The message seems to be clear. Skoda has to know its place in the food chain: at the base.