Terminator

The evolution of Skoda

In an ultra-competitive industry suffering from chronic overcapacity, just how has Skoda managed to become the UK's best-loved car? E&T investigates.

November 1989 was a happy month for most Czechs. The Velvet Revolution meant that millions could start travelling freely. But for the relatively well-paid management of Skoda, a kind of aristocracy of the socialist state, these were glum times.

Because of the shortage of skilled labour that affected so many enterprises in socialist societies, Skoda employed many prisoners. They made up 90 per cent of the pressing plant, for instance. When they were freed during political amnesties in January 1990, it left a gaping hole in the factory's labour force: higher wages could not tempt them back. In one of the ironies of history, conscript soldiers were briefly ordered to fill their places but because they were less skilled, production remained far below demand and Skoda's debts, acquired in the 1980s, continued to grow.

Volkswagen had long eyed the potential markets of Eastern Europe, where car density was so rare there was demand even for the inadequate Skoda. When the Czech government called for a foreign partner, German company VW leapt in with a bid. Renault, which wanted to build its Twingo model, also expressed an interest. VW already had two partners - Seat and Audi, and offered to make Skoda a third one on an equal basis

The company promised to retain the Skoda brand, offered higher social benefits and promised not to fire anyone. In April 1991, the Czech government picked VW, which initially bought 30 per cent of Skoda shares. 

First years

Skoda continued selling the Favorit, an Italian-designed hatchback which had debuted in the late 1980s, but it was a stopgap move. Among the many changes were those connected to labour traditions, but there were initial problems. Though Skoda workers were sent to VW's Wolfsburg plant for training, their productivity did not immediately improve. They had adopted a very flexible, improvisatory way of working during Communism which contrasted greatly with those ways demanded by the Japanese methods employed by VW, where precise just-in-time processes were required and the foreman was the absolute boss.

"With the Japanese, you know, everything has to be done in a certain way; whereas the Czechs had been taught to find spare parts from whatever was available around them. And if you look at the Germans, they would rather wait three weeks for spare parts from Wolfsburg than work on the problem immediately," says Prof Petr Pavlinek, a US academic who is an expert on the Czech auto industry. "There were big cultural differences."

New management

It soon became clear that the methods taught in Wolfsburg would not work on the local production line. There was also irritation that the German managers, skilled only in economics, were overlooking the Czech workers' vast technical skills. "We didn't know a lot about Western advertising or marketing, but we did know how to build cars," one engineer told Pavlinek.

After a year, the Germans learned to adapt to and respect Czech ways and productivity began to increase. This was helped by a system known as the Red Button of Responsibility for other workers' errors that ended the method of cars being checked for errors only at the end of assembly. A VW executive told Pavlinek that it encouraged personal responsibility and attention to detail. 

"Someone could push a little red button and halt the assembly line if something wasn't according to quality standards and levels. The awareness that there is a button to stop the assembly line was something that never existed before," says Pavlinek. The number of defects fell from five per car to less than one, and production of the Favorit jumped as Skoda slowly started to move into profit.

Attention now turned to making the first post-Communist Skodas. Since they were VWs in all the chassis and engine parts, an important element in the Skoda story became its designers. They were drawn from all over Europe, often trained at London's Royal College of Art's respected car design course, and many have since gone on to greater things.

The design team was based in an old textile mill near Mlada Boleslav, Skoda's hometown, full of appropriately trendy gadgets, and built life-sized models and prototypes, putting the most successful ones into action.

Brand decontamination

At the first stage the Skoda brand needed to be decontaminated. This job was performed by Belgians Dirk van Braeckel and Luc Donckerwolke. Donckerwolke later went on to work with Lamborghini, where he became design director, while van Braeckel went to work in the same post for Bentley, where he became responsible for the Grand Tourer, known as the 'car-like yacht for people who already had yachts'.

There was a lot of advertising in Western markets to turn Skoda's image around, admitting old flaws. For the Felicia, the first VW Skoda, the slogan was '548 changes'.

The second VW Skoda production, the Octavia, was a hit. In the words of chief designer Thomas Ingenlath, its distinctive grille made it look mischievous, but not humorous: exactly the kind of bolshy, un-self-apologetic competence it wanted to project. The idea was to produce a serious car before they could make exciting ones. When Octavia beat its stablemate, a Golf, in a 100,000km endurance test, the serious car test seemed to have been passed. By now, Czech engineers began to complain that components coming from Germany had more flaws than their own.

In the early 21st century, the first second-generation car came on stream. The Superb, described as the Big Mac of cars and built on the Passat wheelbase, put high labour staffing and technical skills to good effect. It had many smart details - a chilled glove compartment, an in-car umbrella with holder and a built-in headlamp washer system, for instance. It took advantage of the fact that Czech engineers were able to use longer wheelbases: "A lot more car for your money," went one slogan. Engineers said: "Who cares if the spare parts come from Audi, as long as it works?"

Designing a winner

The VW common platform approach, which allowed innovation in the visible, customer-facing parts of the car, was an important reason for Skoda's success - but it was also important in VW's attempts to gain worldwide market share. They were a throwback to approaches once used by US carmakers, which had operated it on their home models, but latterly had failed to exploit with acquisitions abroad. 

There were several advantages with common platforms: they lowered development costs; they allowed engines and chassis to be trialed in one niche model before being rolled out over the whole group - the chassis destined for the VW Polo in 2000, for instance, was first donated by VW for use the Skoda Fabia; they allowed experimentation with different combinations of power trains, chassis and exteriors - different packages could then be tried out under different brand names aimed at different markets to see what would work.

Models could survive on smaller production runs and production could quickly be expanded if the sales proved successful.

Professor David Bailey, an automotive expert at Coventry University, explains: "It costs billions of dollars to build a new model from scratch; it is easier to try out different combinations of already tested products to see what the customer will like.

"After all, who knew beforehand that the iPod was going to be a giant hit?"

With a growing range of brands - from luxury Bentley to economy brand Skoda - the VW group had the palette of niches through which to reach customers, and the components were already there.

Skoda moves ahead

Eighteen years on, Skoda sales have quadrupled to 650,000 cars a year, and, while it is only responsible for 10 per cent of VW sales, today it contributes 25 per cent of profits.

Prof Pavlinek thinks that VW is allowing Skoda to move ahead, both upmarket and downmarket. A manufacturing plant for the latest Octavia has just opened in Russia; and there are assembly plants in India and elsewhere.

The brand has been thoroughly decontaminated, and Czech engineers, designers and workers have passed the test VW executives set for them back in 1991 when a VW executive recalls saying: "We told them this is either the end of the story, or you do your job." 

"I don't think anyone in the UK has doubts about the Skoda brand anymore," adds Prof Bailey.

In 2005 came the expansion into MPVs in the shape of the Skoda Roomster, imagined in its first prototype as a 'house built on top of the plane'.

Its production model has been described as a combination of a Wendy House and Postman Pat's van, but importantly prices are low - for less than £14,000 you get an alarm, cruise control, curtain and side airbags, electric windows, door mirrors and much more. The critics' generous quip about another new launch, the Yeti crossover SUV, available this year, was that it was so-called not because it was abominable but because it would sell so fast it would be hard to find one.

The Future

"VW has been good for Skoda," says Prof Bailey. Thanks to VW's help, it has become the only central-European engineering enterprise from the Communist era to have turned into a competitive household name - thanks to management flexibility, deep commitment and recognition of the brand overhaul needed. And Skoda has, in turn, been good for VW.

What is less clear is whether the tie-up has been good for the Czech Republic.

Prof Bailey argues: "You can create a two-tier economy, with some suppliers and companies closely linked to the needs of a Western investor, but leaving enterprises outside it vulnerable to the might of the new combine." And Prof Pavlinek adds: "As the largest firm in the country, Skoda is a very strong lobbying force on Czech politics, maybe not always in the interests of domestic firms."

The country is clearly split along wealth lines: towns like central Mlada Boleslav and Prague looking wealthy; others much less so.

2009 has seen a drop in Skoda's figures, with production falling 10 per cent and profits down 60 per cent in the second quarter, but falls at VW have been even greater (80 per cent) and the situation for VW's rivals, Toyota and GM, has been even worse. GM has filed for bankruptcy, and Toyota's production is down a third. VW has seen its global market share rise into double figures and its chairman is gunning for the world's top spot in 2018.

In fact, with its low price/high quality combination, Skoda has been trying to make hay out of the crisis, offering discounts on the fiscal stimulus car scrappage scheme to top up those offered by governments. On Skoda's website, you can buy the much praised new Fabia for £6,500. Prof Bailey thinks the car scrappage schemes with a £1,000 bonus are a good idea. "The UK government has extended the scheme for another 100,000 cars and that could help the industry survive into early next year when the economy picks up."

Twenty years ago Skoda was a car whose doors came off when you ripped them open; who would have thought it would one day be a survivor in an industry on its knees?

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