Škoda Auto steers through challenging market conditions in 2009

The Czech Republic’s biggest car maker, Škoda Auto, has just announced mixed results for last year. Car sales hit a new record high, but turnover was down and profit dropped by around two-thirds compared with the year before. This year also looks like being a big challenge.

Škoda Fabia

There were probably three bright spots about 2009 for Škoda Auto. The first was a record number of cars sold, up 1.4 percent to just over 684,000. The second was a doubling of sales in China to just short of 123,000. The last is that it made a profit at all, albeit only a third of the level of 2008.

Most major European car makers, with the singular exception of Škoda and its German parent company, Volkswagen, experienced a slump in sales and output and slid into the red in 2009.

Ivan Hodač is secretary general of the Brussels-based European association of auto manufacturers, which represents all the big European-based car makers. He summed up Škoda Auto’s sales up, profit down experience last year.

“It is not a typical story. Škoda is benefiting as many of the so-called volume manufacturers from the scrapping schemes in Germany and other countries and secondly their sales were up. But because of the competition on the market and because they had to sell their cars often for a very low price, their profit went down.”

Higher end manufacturers such as BMW and Daimler failed to benefit hardly at all from the scrap incentives as the bottom fell out of their markets.

This year also promises a rough ride for car makers. Škoda Auto hopes at least to equal this year’s profit of 3.46 billion crowns, or around 183 million US dollars. But very weak demand is expected from buyers in Western Europe, including Škoda’s main market in Germany. In addition, company bosses complain that profits are still suffering because car prices are depressed. They blame fierce price cutting started by Korean giants such as Hyundai.

Ivan Hodač

ACEA’s Ivan Hodač again: “The Western [European] market is going to be bad in 2010 and it is for the simple reason that the incentives we had in 2009 are gone. But the Indian market and the Chinese market, the Brazilian market and perhaps the American market are going to grow. I do not expect the European market to grow. On the contrary, I expect there will be a dip. I cannot tell you how much but we expect a dip of anything between 5.0 and 10 percent.”

In fact, Škoda is putting much its growth hopes this year on rapidly rising sales in India, China and Russia. Chinese sales already seem to be living up to expectations with a 129 percent increase in the number of vehicles sold in the first two months of the year.