By on March 11, 2010


When the automotive historians look back at GM they will point to many factors as to why they fell. Some might point to the Unions, some may point to their lack of reliable products, others may even point to their shoddy dealer service. But one factor which undeniably led to GM’s bankruptcy is lack of brand management. If anyone questions the harm poor brand management can do, then, may I point you in the direction of the Cadillac Cimarron? Muddled brands leave people confused and wondering why should I stay loyal to this brand? Your brand is your stamp of a promise to your customer. Safe cars? Volvo or Renault. Reliability? Toyota or Honda. Driving dynamics? BMW. Now I raise this point, because people said that this problem was endemic to GM only. It was a GM-centric problem. But is it, really? Was it really a GM-only problem? Or did GM suffer from “big company” syndrome?  Well it seem there’s evidence that poor brand management isn’t just for American auto companies.

Der Spiegel reports that Volkswagen CEO, Martin Winterkorn, is utterly fuming at Skoda. What could the reason be? Profits? Well, they are down, but we’ll come to that later. No, the main reason why Herr Winterkorn is seething at Skoda is because Skoda is doing well. So, well, in fact, that their cars are now creating problems for VW cars, their main brand.

Let’s go back a bit. Reinhard Jung, the chairman of Skoda, is being sent into retirement at the age of 59. Sounds a bit young, especially when you consider that retirement age in Germany had been raised to 67. But Volkswagen is famous for its lavish early retirement packages.  As reported  at TTAC, Jung is being replaced by Winfried Vahland, President of Volkswagen Group China.

Why the change? Der Spiegel says that the “reason for Jung’s departure is that the Czech VW subsidiary is no longer performing the function it was meant to perform within the VW group…” Skoda’s raison d’etre was to make inexpensive, entry-level cars. Cheap and cheerful, one might say. However, all Skoda engineers had to work with were the Volkswagen cars. So they built them with more attention to detail, “with more love” as the word quickly was in Wolfsburg.  Skoda models come with those little extras which make a car special, which surprise and delight.  When the Skoda Superb came out, it had a feature, whereby an umbrella holder was fitted into the door (more recent version here) complete with umbrella. The Skoda Superb was one of only 2 cars on the market which had this feature. The other? Rolls Royce. Very quickly, word got around that Skodas were Volkswagens, but built better, with better features, and sold for less money. A Skoda became the smart shopper’s choice.

The end result of this is that the edge of VW’s two flagship cars (the Golf and Passat) is being lost on customers. German automotive magazine, Auto Bild, did a comparison test between the Skoda Superb and the VW Passat. The Superb was, well, Superb. Auto Bild said the Superb “simply offers more for the money…a lot more features, and even more space.”. The tester also found no difference in quality between the 2 cars.

Now, as you might suspect, all of this quality comes at a price and Herr Winterkorn knows this, which brings me to the second reason he’s angry at Skoda. Skoda’s profits have been falling. not only has the Czech Koruna been appreciating against the Euro, but all this Skoda quality comes at a price. Skoda pays its workers more in order to build the cars well. But in order for these cars to sell, they have to be priced with value in mind. Which means profits get cut, dramatically. You get a car with the trim of a VW Passat, with the price of a Skoda. That’s money out of Volkswagen’s pocket. And because more people are buying Skodas, the more profitable cars aren’t being sold at Volkswagen.

This is where Martin Winterkorn’s job gets tricky. He has to give the brands room to be themselves, but he can’t allow them to tread on the toes of other brands in the family (the fatal mistake GM made). GM allowed their brands to become the same as each other, to the point where each brand didn’t stand for anything. Not mention that Volkswagen now has a stake in Suzuki which means that’s another set of toes not to be trod on. Does Volkswagen have too many brands? Or can Herr Winterkorn perform the juggling act GM couldn’t do? One thing is for sure. Skoda is due for a “de-contenting diet” very soon. Bringing in the head guy from China suddenly makes sense.

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34 Comments on “The Skoda Conundrum...”


  • avatar
    Mirko Reinhardt

    So the Skoda brand is performing well, because they offer bang for the buck and good quality – and that’s supposed to be bad?

    • 0 avatar
      psarhjinian

      Ask the brand managers at Plymouth, Oldsmobile or Saturn that question. They offered good value, too.

      Cassandra alert: I’ve harped on VW having too many brands in the same space for a while, and that it will eventually pose a problem for them. Even if you’re turning a mild profit now, you’re forgoing more significant profits and ignoring that, at some point in the future, you’re going to have a problem with cost overhead versus your more focused competition.

      VW is seeing the tip of this problem now. This article points to Skoda taking margin out of VW’s hide, but there’s losses at SEAT and Audi to consider as well. From the perspective of the consumer, there’s not a lot of difference between the SEAT Golf, the Skoda Golf, the VW Golf and the Audi Golf, and it costs VW real money to maintain the differences that do exist, money that could be spent making a better Golf for one or two brands.

      This is very different from, say, Toyota/Lexus (where the distiction is actually very clear) or Opel/Vauxhall/Holden/Saturn-Buick (where the distinction is often nonexistent, but they’re in different markets. Those are sustainable; this is like Dodge/Plymouth/Chrysler or Chevy/Pontiac: sure, you might be making the volume, but it’s at your own expense.

      What should worry VW people is that there’s plans to extend this silliness to Porsche, Audi and the upper-trim brands, where the opportunity to make it back on volume does not exist, never mind the sullying and watering down of brands. A VW-branded Porsche (or a Porsche-branded VW) is a really bad idea.

      This all points back to a terrifically arrogant management, one that can’t change direction because it would mean calling into question the decisions made before.

    • 0 avatar
      th009

      Losses at Audi? In what alternative universe? They made €1.35B last year, during the depths of recession.
      http://www.thetruthaboutcars.com/carmageddon-audi-rakes-in-billions/

      As for “a VW-branded Porsche (or a Porsche-branded VW) is a really bad idea,” the Cayenne, Touareg and Q7 seem to have done quite all right (the Touareg is probably the least successful of the three).

    • 0 avatar
      psarhjinian

      Recall that, when GM started rebranding product and diluting the rationale for each of it’s individual brands, it was still doing well, too.

      Yes, Audi did well this year, but this isn’t a short-term problem in the making? If this isn’t fixed, the question is “How well is the VW group as a whole doing, versus it’s less-encumbered competition?”

    • 0 avatar
      th009

      I think today VW is doing very well, both in terms of profitability and worldwide market share. Most observers would see its brand management as the best in the industry, though that’s naturally going to be a subjective evaluation.

      In the future, none of us know. The Skoda management change may be a harbinger of doom (as you say), or it may simply be an indicator of VW’s vigilance in maintaining brand identity and managing brand differentiation. We simply don’t know yet.

      But if you look at VW’s recent performance, all of its brands bar SEAT have generally been profitable for a number of years, and even in 2009 there were no major losses at any of the brands. So while the future is unknown (as it usually is) I don’t yet see any evidence of a meltdown in VW’s brand management.

    • 0 avatar
      porschespeed

      “A VW-branded Porsche (or a Porsche-branded VW) is a really bad idea.”

      While I’m pretty sure where you’re going with that, from a historical perspective it has been the key to Porsche’s survival.

      The 914 (badged as a VW-Porsche in Europe), not to mention the origins of the 924, and, natch, the Touareg.

      I wholeheartedly agree that there needs to be obvious differentiation between VW and Porsche product – but until the yoke of keeping the 911 alive is removed, there will always be a need for cross-over volume cars.

  • avatar
    another_pleb

    So instead of taking a leaf out of Skoda’s book and making better VWs with friendlier dealers, they’ll constrain Skoda to maintain VW’s image of being at the top end of the middle market.

    In Europe at the moment savvy, middle class shoppers are going to discount supermarkets such as Aldi and Lidl where you can still buy champagne, smoked salmon and serrano ham but pay a lot less than the Sainsbury’s or Carrefour. This is very much like buying a Skoda; a purchaser, buying with their own money, not terribly interested in motor-cars but who wants a sensible, comfortable vehicle that doesn’t cost too much to buy or run won’t necessarily care what badge is on the front but will most likely be loyal to the brand until the quality starts to slip or the price gets too high whereby they’ll move on to a new brand and probably never return.

    Wasn’t VW supposed to be the cheap and cheerful people’s car?

    Besides, didn’t VW trample on Porsche and Audi’s toes with the Tuareg and Phaeton? Not to mention the many competing high-performance supercars made by the various VAG companies.

  • avatar
    pleiter

    Skoda has a long reputation for superior product, at least in armaments. I don’t know how someone can decontent superior workmanship. Maybe Skoda workers are paid for performance, and German workers bill-out high due to benefits and largess. What are the union differences between the countries ?

  • avatar
    TomH

    FYI…

    As a quick aside, VW has nothing on GM, as Cimarron branding was even more confusing than you think. The Cimarron was not a Cadillac. Cimarrons had separate dealer agreements and were actually branded as Cimmaron BY Cadillac. (It was a GM ploy to maintain plausible deniability.) If you looked at the badging on the car, nowhere would you find a standalone Cadillac logo.

    GM initially pulled the reverse ploy on the Olds Aurora. GM was beginning to have second doubts about the gang in Lansing and the first generation Aurora’s were completely devoid of standalone Olds badging.

  • avatar
    Robert.Walter

    Shouldn’t somebody at VW been fired for not equally upping VW’s game?

    Wasn’t that the point of the Phaeton, als ein Technologieträger, to allow VW to shed the last vestiges of its old image and move further upscale?

    I understood the VW move upscale, but still didn’t understand the need for both Skoda and Seat.

    • 0 avatar
      texlovera

      “Shouldn’t somebody at VW been fired for not equally upping VW’s game?”

      My thoughts exactly. I can understand some dismay at seeing profits fall at Skoda, but de-contenting them now is just a step backward to me.

      If VW can’t stand that Skoda is providing more value than VW, spin them off and compete against them freely; let the market decide. Too many brands, indeed…

    • 0 avatar
      ClutchCarGo

      However, upping VW’s game would further erode profitability the same way that upping Skoda’s game did. Unless they can raise prices, which seems unlikely in an over-saturated market, they can’t keep adding content and quality across the board. I think Cammy’s brand issue is more to the point. If they let Skoda move up market without making comparable changes along the brand spectrum they’ll wind up with an unprofitable brand muddle as smart buyers seek the best values. If they have an entry-level value brand, it needs to stick to entry-level vehicles.

  • avatar
    Zarf

    I just checked the Skoda site and those are nice looking cars. Heck, the TwinDoor system for the trunk is really cool. Wish my GLI could do that.

    If you could get these in the U.S. I’d give them a look.

    • 0 avatar
      salhany

      Agreed; when I’ve ridden in Skodas in Europe (Octavias for the most part) I’ve always been very impressed with them. I love the hatchback design on the Octavias and wish they’d bring them stateside.

    • 0 avatar
      Rod Panhard

      It sounds like VW should incorporate these innovations into their soon-to-be American built products. That could be just the ticket that they need to differentiate themselves from everyone else.

    • 0 avatar
      MontanaVista

      For the past year or two I have been quietly thinking to myself – Man, I really want a Skoda. As I vacation in Europe every summer I see them, along side a lot of cars we don’t have Stateside, and I always return and immediately check out the Skoda website.. It will never happen though. I think we have a better chance at seeing Renault come to the US.. Just my two cents.

  • avatar
    andrichrose

    Sounds like Skoda need a few case’s of ” Sudden Unintended Acceleration” !

  • avatar
    educatordan

    Nice move VW. Let’s do to Skoda what GM did to Oldsmobile, Saturn, and Pontiac. Sigh, forget Toyota as the new GM, VW is the new GM.

  • avatar
    John Horner

    The most recent Passat was downgraded specifically because the prior generation was too good and was stealing customers from Audi.

    VW’s problem is that they are building a massive number of nameplates off a very small number of basic platforms. Value buyers will figure out what’s up and make the smart choice.

    • 0 avatar
      Dr Strangelove

      The “massive number of nameplates” is 3, and of these only Seat is redundant. There likely is not a lot of components shared between a Bentley Continental, an MAN truck and a Skoda Superb, the umbrella holder notwithstanding.

      The platform sharing has its tricky issues, but what’s the alternative? Getting rid of Skoda would leave the value end of the market uncovered, while getting rid of VW’s German factories is politically impossible. Considering their constraints and their traditional competitors such as Opel or Fiat, they have been doing rather well.

    • 0 avatar
      th009

      @John Horner,

      Building a massive number of nameplates off a very small number of basic platforms can be a problem — or a huge competitive advantage. It all depends on how well you do brand management, and how much you are able to differentiate the different cars you build off the same platform.

      Most other manufacturers are trying desperately to reduce the number of different platforms they use, and to build more models from a single platform to gain efficiencies of scale.

    • 0 avatar
      psarhjinian

      John is right, both about the number of nameplates and that it is a problem. Even if they’re not all on strictly the same platform, they rub shoulders uncomfortably within the VW stable.

      The way it’s going–heck, the way it is now in some segments—for every VW model there will be at lease one of each of a Skoda, SEAT and Audi. Sometimes there’s more than one, if you take door, roof and ride height variants into account. Each of these variants costs money to design and takes money (and attention) to market.

      This was a difficult proposition for General Motors when they had >30% of the market in North America, and North America was never as hyper-competitive as Europe. The best Pontiac competitor was often a Buick, Chevy or Olds. This means that GM had to do more work and spend more money for each segment than, say, Toyota or Honda. VW has much less marketshare in Europe than GM did in North America, yet they’re hell-bent on making the same mistakes.

      If Toyota, Ford, Hyundai or Renault can make the same segment-applicable car as VW can, but they can spend less to do it, how long will this strategy be sustainable?

      VW, at present, owes much of it’s success to a smart domestic stimulus package, not having a North American presence to lose, and significant weakness in a major competitor (Opel). This is luck, not astute management, and it won’t last. It’s certainly not an endorsement of the idea that four or five brands of every model is sustainable. VW’s management, though, is so in love with it’s good fortune that it doesn’t see the eventual reckoning.

    • 0 avatar
      th009

      “If Toyota, Ford, Hyundai or Renault can make the same segment-applicable car as VW can, but they can spend less to do it, how long will this strategy be sustainable?”

      That is indeed the question. Of course, the first question is whether Ford and Renault, for example, can actually produce comparable cars for less, given that they have far smaller volumes per platform.

    • 0 avatar
      TomH

      Dr. S.

      VW+Skoda+SEAT+Audi= 4

  • avatar
    rubiolio

    Reading the headline I thought for a moment that was the name of the car; the 2010 Skoda Conundrum :)

  • avatar
    Mirko Reinhardt

    Maybe the problem is that they are making a model called the Skoda Superb (for less than Passat money, with more than A8 rear legroom!), when Winterkorn would prefer them making something called the Skoda Mediocre. Or the Skoda Not-Quite-as-good-as-a-VW.

  • avatar
    Dr Strangelove

    1. Someone asked: Why the need for both Skoda and Seat? This is just a historic development. Seat was acquired when the Spanish market was opened up in the post Franco era; that was before the iron curtain came down. However, Spanish factories weren’t in a position to compete with those in eastern Europe on cost of labor; hence the need for Skoda. Both acquisitions made sense at the time.

    2. Re Skoda doing everything right, and VW being the real losers: Not so fast. If Skoda, with its high quality workforce that is still paid less than that at VW, AND with its development already done for them by VW, can’t turn a decent profit, then they are indeed doing something wrong. That’s true independent of whether or not VW is doing everything right.

    Skoda should be competing against the Koreans, not against VW. So, Winterkorn has a point. He generally has – I think he is the best CEO at VW in a long time, even though his style is a little grating.

  • avatar
    Paul Niedermeyer

    Skoda started out to be a true low-cost brand well below VW, like Dacia is to Renault. Skoda has definitely gone to up-market, an now VW has no Dacia fighter. That totally explains the hookup with Suzuki.
    But it clearly has made a muddle of the distinctions between Skoda and VW. And its a problem. And its too late to turn Skoda back into a Dacia.

  • avatar
    Jack Denver

    Instead of retiring Jung, they should have put him in charge at VW. The umbrella ploy is brilliant – they probably paid a $1 for each umbrella and got $100 worth of free publicity and goodwill.

    The idea that your cars are “too good” and need to be “decontented” (a euphemism for “stripped down and reduced in quality”) is the stupidest concept that has ever taken hold in the auto world. Wherever this idea has taken root, disaster has followed, long term. You can rest on your past glories short term (selling your “decontented” vehicle for the same price as the “contented” ones and thus reap short term profits because your costs are now lower) but eventually consumers will notice the “decontenting” and go elsewhere in droves. If your cars are “decontented” your customers will be “discontented”. People want more for less, not less for more.

  • avatar
    Jack Denver

    Also, the idea that the Superb is really the superior of the Passat is not quite right either – it is sort of like a Hyundai Genesis, filling the “affordable luxury” niche. So you get lots of room, but ponderous handling and dull styling (the 2 piece liftgate is clever though). Something that appeals to limo fleets – the European equivalent of the Lincoln Town Car. It occupies a different niche than the Passat notwithstanding that many platform components are shared.

  • avatar
    beken

    Another car with a slot in the door for an umbrella was, in fact, the Volkswagon Passat. However, VW made you pay extra for the umbrella…at least here in Canada.

  • avatar
    Fusion

    The VW Passat had that umbrella-feature as well. IIRC certain versions of the VW Multivan did too, and Umbrellas were handed out with almost every VW Golf (though that one didn’t have a doorslot for it) for years in Germany…

    The Spiegel Article seems highly speculative to me. It doesn’t actually name a single source (not even the usual “high up executive” or “unnamed board member” or “person close to Winterkorn”). IMHO it is far more possible that Jung has to go, because during his tenure while volume has shot up, the profits have dropped severely, even before Clash-for-Clunkers schemes were introduced.

    And selling more expensive to make cars at low prices isn’t really doing a good job. The whole “dangerously close” to VW part also isn’t really supported by the numbers. THe last “internal study” to that effect said that 27k buyers changed from VW to Skoda, while ~6k buyers went the other way. However, that was in a year when VW grew by 400k sales worldwide, and Skoda grew by 104k.

    So it was an acceptable amount of cannibalism, as long as there was worldwide growth for both. But if Skoda cars are actually making less profit than VWs, its not anymore…

    • 0 avatar

      Interesting. You seem to have access to Volkswagen’s “Wanderungsstudien.” They somehow took me off the distribution list when I left. From what year is yours? Markt D or Europe?

      If I recall right, Skoda started the Regenschirm craze in 2001 – 2002, the umbrella holder even received a little hose to drain off the water. The Passat received the umbrella years later, IIRC in the Trendline version of the 2005 introduced B6.

    • 0 avatar
      Fusion

      No, sadly no access. Just the one Study that leaked out a few months (years?) back. And the data is older than I remembered, the reported years are 05/06…

      http://www.automobilwoche.de/apps/pbcs.dll/article?AID=/20070425/REPOSITORY/70425004/1056/REPOSITORY If you like to read it.

      Don’t know about the umbrella stuff (who started it, etc.). Just that its not a Skoda/RR exclusive feature by now. Now, with the California, you can get chairs in the backdoor (see here: http://www.autobild.de/ir_img/58956041_63878a3645.jpg). Now thats a feature. ;)


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