Why Skoda is the rising star within the Volkswagen Group.

Of all the car makers in the world, I would argue no one does car branding better than the Volkswagen Group. It is a testament to this group that they have not only survived the most blatant automotive scandal in recent memory but have remained profitable, with net income of 11.638 billion Euros in 2017.

The Volkswagen Group consists of a number of car brands and not all of them are created equal. This menagerie has worked successfully through careful positioning. The focus of this blog will be on the mainstream brands so I am excluding Bugatti, Bentley Porsche, and Lamborghini. The cars that normal people buy consist of Audi and Volkswagen globally and in Europe SEAT and Skoda. All of these companies share platforms and engines and appeal to a specific market. Audi is the "premium" brand and Volkswagen falls in behind them as a 'semi-premium brand", though this gap is closing. SEAT is the Spanish "sporting" arm and Skoda is the "budget" brand. Profitability is something that the Group has been able to maintain but the image of Volkswagen and Audi have been tarnished through the Dieselgate scandal. Both companies are scrambling to electrify their new cars in an attempt to banish any mention of tinkered emissions. But in the real world, these cars are still unproven and expensive. SEAT as a brand is not strong outside of its home market and has consistently struggled to define itself within this group. Ironically, it appears that Skoda is now the rising star in this group and one that Volkswagen is pushing to the forefront.

Skoda Auto is a Czechoslovakian car manufacturer that can trace its roots all the way back to 1859. Volkswagen bought a 30% stake in the company in 1991 and slowly transformed it from a joke of an Eastern Bloc car maker to the second most profitable member of the group in 2017. Skoda has had access to platforms, engines and technology that have helped it grow a strong product line of cars that people trust. Their formula has been to offer proven technology in larger, well-finished cars that appeal to the mass market. The first breakthrough car was the Octavia, launched in 1996. It was essentially a Mark 4 VW Golf with a larger body and lower price. Taxi drivers in Europe bought them up, despite not offering the same high-tech features available in costlier Audi and Volkswagen models. The Fabia hatchback arrived in 1999. This was the first car to be based on the then new Mark 4 Polo platform. Again, it was a solid car that continued to expand Skoda's reach. The company's position was cemented with the Superb, the largest saloon in the range. It was based on a stretched Passat platform and had an umbrella in the back-door imitating Rolls Royce! The styling was plain and honest, with good attention to detail and an affordable price. The investment from Volkswagen and the continued loyalty of customers has helped transform Skoda from a marginal player into a major player within the Volkswagen group.

The the new Scala marks a shift for Skoda. This is the first direct hatchback rival the company has ever made under Volkswagen. It will be based on a revised version of the MQB platform and be a showcase to the latest technology, both underneath and inside the car. The family hatchback segment is still a major market in Europe and Skoda will now be competing with KIA, Ford, Renault, Peugeot Mazda and Honda as well as Volkswagen itself as well as Audi and SEAT.

 

All this being said, there are risks and potential losers within the Scala launch. VW Golf sales could suffer as the car moves upmarket and more to the point, the Golf could potentially cannibalize sales of the Audi A3 range. Even now the Golf R and S4 are very similar vehicles and this overlap will only continue to increase. But the biggest loser I can see will be SEAT. Yes, they have their own hatchback, the Leon, and it will probably see its own already small market share shrink. Indeed, this focus on Skoda and its ability to generate profit only serves to highlight how vulnerable SEAT really is. For now, clever logistics and product overlaps mean that SEAT factories can be easily modified to make other cars for the group. However, the question remains. What will happen to them as a manufacturer in the future?

Skoda's star is ascending right now and the Scala is an exciting proposition. This car is the next step in broadening Skoda's appeal global and becoming the true "people's carmaker" of the 21st century in Volkswagens place. I doubt anyone could have predicted that thirty year ago.

 

Skoda disguised prototype: www.carmagazine.co.uk

Interior sketch: www.express.co.uk