The record-breaking Škoda Auto production

ŠKODA plant in Mlada Boleslav, Czech Republic (ŠKODA, Public domain)

In 2018, Škoda Auto, a subsidiary of the Volkswagen Group, delivered a record number of 1.25 million automobiles, surpassing its last year record by 4.4 per cent. The Mlada Boleslav-headquartered company has been increasing its sales for a 5th year in a row.

According to the company’s press release published in January 2019, the most vehicles were sold in Europe (826,800), followed by China (341,000) and Russia (81,500). The amount of cars sold in these geographical areas grew by 4.4 per cent, 4.9 per cent and 30.7 per cent, respectively.

“In 2018, we delivered more vehicles than ever before. This result demonstrates that the Škoda Strategy 2025 is effective; our product campaign is unfolding its power around the world. Škoda is growing sustainably and manageably despite the fact that 2018 presented numerous challenges for the entire industry, including the WLTP changeover,” said Škoda Auto CEO Bernhard Maier.

The greatest sales increases for Škoda cars in Europe were reported in Greece (17.6 per cent), France (17.5 per cent), the Netherlands (11.6 per cent), and Spain (11.5 per cent).

However, Škoda underperformed in its home country, the Czech Republic. For the first time in five years, the Czech carmaker sold less cars domestically than in the previous year, reporting a drop of 3.7 per cent (261 437).

It wasn’t a good year just for Škoda, but rather for the entire Volkswagen Group. According to the company’s press release published in January, the group sold 10.83 million vehicles worldwide, a 0.9 per cent y/y increase. Like Škoda Auto, Volkswagen Group set an all-time record in sales in 2018. “Even though setting new records is no longer our primary goal, we are very pleased about this great result. Especially in the H2, things were not easy for us in 2018. It was possible to achieve this new deliveries record for the Group thanks to a combination of outstanding products and the high level of trust placed in us by our customers,” Head of Volkswagen Group Sales, Dr. Christian Dahlheim, said.

The primary goal of Škoda Auto, as well as the entire Volkswagen Group, is to transform the company so that it is prepared for the next era in automobile industry. According to the company’s Storyboard, Škoda’s first electric vehicle and first plug-in hybrid will hit the market this year. By 2025, the plan is to have produced 10 electrified Škoda models.

“By 2025, ŠKODA’s portfolio will include 10 electrified models in various segments, six of which will be all-electric, the others will be plug-in hybrids and hybrids. In addition, models featuring highly efficient internal combustion engines will also continue to be made,” the Storyboard statement reads.

Limits to growth

Škoda’s unprecedented success is particularly remarkable when one considers the shape the company was in after the end of communist regime in Czechoslovakia. In less than 30 years, Škoda transformed itself from a heavily indebted and technologically backward state-owned enterprise to one of the world’s leading car manufacturers.

Moreover, it has also rapidly moved upmarket. Focusing once on low-cost vehicles for the Soviet market, Škoda today is challenging some of the major brands in Volkswagen Group, such as Volkswagen, BMW or Audi, in sales across the globe. Since 2007, the Mlada Boleslav-headquartered car manufacturer has nearly doubled its sales to 1.2 million. Now it seems that the only thing stopping the company from further growth is the lack of available workforce.

Like many other countries in Central and Southeast Europe, the Czech Republic consistently reports some of the lowest unemployment figures in Europe. The scarcity of workforce gives all the trump cards to the hands of Škoda’s Czech labor unions. Earlier last year, Union representatives at Volkswagen-owned Škoda Auto, one of the largest manufacturing plants in the Czech Republic, accepted management’s offer to raise wages by 12 per cent. Besides raising wages for the workers, the offer also included increases in bonuses and incentives. Similar pay rises are expected to come this year as well.

The lack of available workforce in the Czech Republic, resulting in growing pay demands from the Union representatives, has markedly changed the perception of the country as a low-cost manufacturing haven. The prevailing conditions on the Czech labor market has made the difference between manufacturing costs in Germany and the neighboring Czech Republic grow thinner and thinner.

Production to move further east

VW Group announced that it was looking for a third Škoda plant, as the two Czech plants were already running at their full capacity. The initial plan was to build a third plant in the Czech Republic, but the plan was quickly scrapped as the investment, given the growing wages in the country, would be too high. Another reason to increase the Group’s production capacity is the need to create more space for electronic vehicle production in the existing facilities.

In a press release published in November 2018, VW Group announced that Volkswagen plants at Emden and Hanover in Germany will be changed over to the production of electric vehicles. Consequently, production of the models currently manufactured at the two German plants will be transferred to the Skvas factory in Kvasiny (Czech Republic).

To create more space for the models transferred from the German plants to Kvasiny, as well as to cope with the growing demand, VW Group is now looking at locations in Turkey and Romania for its new car factory, where production is expected to commence after 2022. According to business-review, the new plant, which will have between 4,000 and 5,000 employees, will be producing SUVs Škoda Karoq and Seat Ateca, both of which are currently manufactured at the Kvasiny plant.

At the same time, according to the Slovak Spectator, VW Group plans to reduce its staff in Slovakia. In June 2019, nearly 3,000 employees may be laid off. One of the reason is the unknown future of the Bratislava-based plant, which has not been assigned any of the new models that Volkswagen wants to produce after 2022.

Filip Brokeš is an analyst and a journalist specializing in international relations.

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