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Skoda the money spinner

Skoda Auto is probably bigger than most people in Singapore realise.

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"As a new brand coming back into the market, there will be a real focus in understanding Singapore consumers' demands and on strengthening our portfolio. Mindful of the fact that customers are individuals, our strategy will be to focus our efforts on their requirements and to respond with relevant products and services accordingly." - Ricky Tay, managing director of Skoda Centre Singapore.

Mlada Boleslav, Czech Republic

WHATEVER you think of Skoda cars, the company that builds them is an earnings powerhouse.

Of the Volkswagen Group's eight car brands, Skoda Auto is beaten only by Porsche in the race to deliver the fattest profit margins. Last year it overtook Audi, VW's premium brand, by posting a juicy profit margin of 9.7 per cent.

Not bad for a nameplate that's thought of as a cut-price alternative to the Volkswagen brand itself.

While it delivers enviable margins, Skoda Auto is probably bigger than most people here realise. Having delivered 316,700 cars worldwide in the first quarter of 2018 (its best ever in terms of volume, revenue and profit), the Czech carmaker is more than twice as large as Sweden's Volvo by unit sales.

In Singapore, however, the brand effectively has to start from scratch. Volkswagen Group Singapore, which operates the Skoda Centre Singapore that opened for business in March this year, estimates that there are only around 100 Skodas on the road.

These will have been sold by smaller dealerships that failed to make the brand work here in the past, resulting in a five-year absence from Singapore after Skoda's last dealer, Harvest Automobiles, met the reaper in 2013.

Yet, Skoda itself is no stranger to having to reboot its business repeatedly.

Its origins lie in Laurin & Klement, a company named after its founders that started by building bicycles in 1895. It ventured into motorcycles, then built its first car in 1905.

After a disastrous workshop fire in 1925, its founders sold the company to Skoda Works, a conglomerate that made and sold, among other things, trains, ships, aircraft and weapons.

The second World War disrupted business when Skoda's factories were co-opted for military use, and communism saw the carmaker spend 46 years behind the Iron Curtain, gradually falling behind globally competitive carmakers in the West.

Things began to change in 1991, when a newly elected government courted foreign partners for Skoda Auto, and chose Volkswagen to take a 30 per cent stake in the business.

"Skoda's development has been exemplary, particularly since becoming part of the Volkswagen Group in 1991," says Ricky Tay, the managing director of Skoda Centre Singapore.

"Globally, the company's sales have more than tripled and its product portfolio has expanded significantly."

VW helped reinvent the company, lending it the popular Golf platform to build a new car in 1996. Skoda revived an old name for the new model, calling it the Octavia, and finally found its recipe for lasting success when sales took off.

Skoda cars have been heavily VW-based ever since.

The Octavia, now in its third generation, is still the brand's most popular car. One in three new Skodas is an Octavia, Stepan Rehak, a company spokesperson told The Business Times.

Volkswagen took full ownership in 2000, and now uses a Skoda plant to manufacture gearboxes and engines for use in its other brands' cars.

While leaning heavily on its parent's engineering clout has been good for Skoda Auto, there is a palpable sense that the company wants to be known as more than a second-tier version of Volkswagen.

New design

The brand is a source of national pride for Czech people, says Veronika Klofcova, who works in Skoda's communications department. A youthful 26, she says that Skoda is a brand that connects with young people there.

"We are really pushing the direction of design, and I feel that people in my generation are feeling that the cars look very nice, and they can get it for a reasonable amount of money," she tells BT.

To revamp Skoda's design direction, Volkswagen installed Oliver Stefani, a 26-year veteran of VW's design department, as the Czech brand's head of design last year (his predecessor, Jozef Kaban, had left to run BMW's design department).

He visited Prague, the Czech capital, for the first time last year. "It's a really beautiful city with a lot of style and history, but it also feels young and vivid. I like this. It is the same with Skoda," he said on the company's website this week.

His aim is to draw on traditional influences such as Bohemia crystal and try to make Skoda's cars more seductive.

"People should buy a Skoda not just because it is a good deal and value for money, but also because they love the design and the car in general. This change will start with the cars that are coming out this year, and later we will do even more," he said.

The Vision X, an electricity-natural gas hybrid crossover concept that Skoda showed at the Geneva motor show in March, provides a strong hint of where Mr Stefani and his team want to take Skoda design.

For now, however, Skoda Centre Singapore intends to take a cautious approach with the brand. "As a new brand coming back into the market, there will be a real focus in understanding Singapore consumers' demands and on strengthening our portfolio," says Mr Tay. "Mindful of the fact that customers are individuals, our strategy will be to focus our efforts on their requirements and to respond with relevant products and services accordingly."

If the strategy works, Skoda could well become an earnings powerhouse for Volkswagen in Singapore, too.

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