Future of Czech car maker Skoda uncertain as Volkswagen Group reconsiders global strategy

Photo: CTK

Employees of Czech car maker Skoda staged a protest demonstration outside the factory in Mlada Boleslav last Friday for fears of lay-offs due to reported changes in the global strategy of the Volkswagen group to which Skoda has belonged since 1991. The chairman of Skoda's Trade Unions Jaroslav Povsik talks about mounting uncertainty and fears among the employees of the Czech flagship exporter but he remains optimistic about the future, even if Skoda's product range is reduced to one small model.

Employees of Czech car maker Skoda staged a protest demonstration outside the factory in Mlada Boleslav last Friday for fears of lay-offs due to reported changes in the global strategy of the Volkswagen group to which Skoda has belonged since 1991.

The chairman of Trade Unions at Skoda, Jaroslav Povsik, who is also a member of the supervisory board, sees the most urgent problem in a continuing reduction of the number of jobs. He said there were no lay-offs in the proper meaning of the term, however, Skoda has many foreign workers on term contracts and once the contracts expire, they are not renewed and the jobs are done away with.

Number of employees - top: core employees, bottom: temporary employees, graph: CTK
For instance, we have a problem in our production facility in Kvasiny where we are reducing the number of staff in quite a drastic manner. I would say workers were flowing in through one channel to produce Superbs and now they are flowing out another channel at the other side of the factory. It is a great disillusionment for all of us. We expected Superb to succeed primarily on the German market, but probably there is internal competition with the Volkswagen Passat. The door is not open for us in Germany.

The unions' protests came in reaction to media reports that the Volkswagen group has decided to stop fierce internal competition between its brands - namely Volkswagen, Seat, Audi and Skoda. Within seven years, some models should be discontinued and the individual brands should focus on certain types of cars to cover the whole spectrum together, while not competing with each other.

Skoda currently produces three models - the small Fabia, the mid-range Octavia, and the luxury Superb, and sells them on markets worldwide. However, German representatives of Volkswagen have suggested that, in the future, Skoda focus on small cars - that means keeping only Fabia. Alternatively, the company could find a niche in the segment of the so-called SUV or sport utility vehicles where the Volkswagen group has no representation. Contradictory to these statements, Skoda's CEO Vratislav Kulhanek said production of all three Skoda models will continue.

At the weekend, Skoda's top model, Superb, was voted the Luxury Car of the Year by the Association of Scottish Motoring Writers. However, the future for the car - meant to be a rival to prestige saloon cars such as the BMW 5 Series and Mercedes E-Class - is uncertain. According to Jaroslav Povsik, Skoda's problem is that it makes award-winning cars that do not sell very well.

We are making high-quality cars, using advanced technology, and they are really great. However, they sell for a certain price and customers do not want to buy them. We are winning prestigious awards around the globe but the number of cars on sale exceeds demand. We are then forced to limit production; we have cut production for many days this year, which we don't like.

When Volkswagen entered Skoda, it presented ambitious development plans. However, those plans have shrunk somewhat. Skoda expected to have been running at at least 80 percent of its capacity by now. But a production facility in Vrchlabi was closed down, a motor production plant with a capacity of 2000 cars a day is running at 20-30 percent, and the production facility for Superbs, planned for 150 cars a day with further growth potential, has been producing only a hundred cars a day with staff being laid off. Mr. Povsik believes that some of the decisions about the future of Skoda within the Volkswagen group are politically motivated, especially given the fact that the local government in Bavaria holds a 20-percent stake in the parent company and strives to preserve local jobs.

We appreciated Volkswagen's project which envisaged added-value production at Skoda, research and development, tool-making, that the great engineering potential will be utilised. The market is different today and we are now an integral part of Volkswagen group. We will be happy to produce small cars or some components, but we need just decisions, not political ones.

Photo: CTK
Although he has been sitting on the supervisory board, Mr. Povsik does not have any official information about the new strategy and considers it outrageous that German representatives of Volkswagen talked to the media first.

Skoda was established in 1895 and has been producing passenger cars since 1905. Currently, 80 percent of Skoda's production is exported to 73 countries around the globe, accounting for 10 percent of total Czech exports.

Now, according to some reports, Skoda might be forced to focus on East European and Asian markets. Mr. Povsik sees significant drawbacks in such an orientation:

As far as the East European markets are concerned - that is Poland, Slovakia, Russia and Hungary - there is a great potential of clients but we have no guarantee of payments. So we don't like to supply those markets blindly, when we may not get paid for what we supply. Nevertheless, we maintain our presence on those markets, we are trying to penetrate the Chinese market and other territories as other car makers do, but despite all our efforts, we have not been successful.

Whatever the new strategy will be, employees of the Czech flagship exporter see the current uncertainty as the worst impediment. Mr. Povsik though remains optimistic:

The future is bright for Skoda. The only thing we need is the right decisions. There have been investments in state-of-the-art technology, we have top-quality workforce, we need them just to say let's utilise the capacity. That's what we have been waiting for, for what the new head of the concern, Mr. Pischestrieder will say.