Hyundai challenges Skoda for Czech crown in key European test

After more than doubling market share at Skoda's expense in the last decade, Hyundai is now second only to Skoda in deliveries in the Czech Republic, where it has its highest market share in all of Europe.
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BERLIN (Bloomberg) -- With the precision of a military man, Jan Cervinka rattled off projects that need to be done at the auto dealership he converted to a Hyundai store in 2012.

"This is a never-ending fight for the customer," said Cervinka as late afternoon sun streamed through the floor-to-ceiling glass walls of the two-story shop near downtown Prague.

"There are lots of things we have to renovate" to win over more Czech buyers at the store, which previously sold models from Volkswagen's Skoda.

Cervinka is on the front lines of a battle between Hyundai Motor Co. and Skoda Auto for cost-conscious consumers across Europe.

Nowhere is the rivalry more intense than in the Czech Republic, home base for Skoda since 1895 and Hyundai's manufacturing hub in the region since 2008.

It's a test of the Korean automaker's ability to challenge an entrenched local player as it tries to boost Europewide market share to 5 percent later this decade from 3.4 percent now.

That would make it bigger than Fiat S.p.A.'s namesake brand.

"It would be a huge loss of face for Skoda if Hyundai beat them in their home market," said Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany. "Both brands have a similar position and are fighting increasingly with the same means" including good quality at a reasonable price.

Beating target

If Cervinka's first year as a Hyundai dealer is any indication, Skoda and other European carmakers such as PSA/Peugeot-Citroen in France and Fiat in Italy will have a tough fight on their hands.

He's on track to deliver 600 cars this year, double his original target.

After more than doubling market share at Skoda's expense in the last decade, the Korean automaker is now second only to Skoda in deliveries in the Czech Republic, where it has its highest market share in all of Europe.

Hyundai has pulled this off by appealing to local passions such as sponsoring the Czech national soccer team, part of a plan to highlight its "Czechness" -- a going-native strategy it's pursued across Europe as it seeks to be more than just a good deal.

While the bargain approach helped Hyundai grab share in recent years, that growth stalled in 2013 with fewer first-time buyers to target amid Europe's economic slump.

That means Hyundai has to pry customers away from other manufacturers, which are fighting back. The Korean brand's sales declined 2.1 percent through November, while Skoda deliveries rose 2.2 percent, according to data from the ACEA trade group.

Side-by-side comparisons

To be more Czech, Hyundai promotes its factory in the country, which employs 3,500 people and pumps out 300,000 vehicles annually.

The plant builds 72 percent of the vehicles Hyundai sells in the country.

"By definition we are a local manufacturer," said Vladimir Vosicky, head of Hyundai's Czech sales organization. "We would like to be the preferred local brand."

Vosicky in September had Hyundai dealers display Skoda's new Octavia model, which starts at 334,900 Czech crowns ($16,550), alongside its own 279,900-crown i30 and 569,990-crown i40 cars so that customers could do their own side-by-side comparisons.

The Korean automaker's efforts have paid off. Its market share in the Czech Republic rose in the last decade to 9.6 percent from 3.6 percent, according to data from the country's Car Importers Association.

Skoda has dropped during that period to 30 percent from 48 percent. Hyundai's eventual goal is to capture 15 percent of the market, Vosicky said.

An employee performs a quality control inspection on a Skoda Octavia on the production line at the Skoda Auto AS plant in Mlada Boleslav, Czech Republic, on Dec. 4, 2013.

Photo credit: BLOOMBERG

Share battle

Skoda has fought back by rolling out eight new models this year, including the revamped Octavia hatchback and Rapid sedan.

The automaker, which employs 26,000 people in the Czech Republic, has modernized production facilities in its hometown of Mlada Boleslav and opened a new quality center this year.

To maintain an emotional bond, Skoda sponsors the national hockey team in a country crazed about the sport.

The car manufacturer, whose sprawling Czech facilities include a labor-intensive foundry and forge that spew out molten orange aluminum parts, is relying in part on tradition to keep its remaining market share.

"We will fight to the last second to keep one-third of the Czech market," said Jan Hurt, the brand's sales chief for central and eastern Europe. "The loyalty of Skoda customers is quite high when compared to competitors."

The Volkswagen unit, which has successfully expanded outside eastern Europe by making reliable, value-oriented cars, aims to match Hyundai's goal of reaching 5 percent market share across Europe later this decade, up from 4.1 percent this year.

Glass walls

To maintain its sales advantage in the Czech Republic, Skoda is refurbishing its dealer network.

Exteriors will use more glass, and interiors will have a welcome area and space to showcase new arrivals.

Emanuel Lopez tore down his Skoda dealership on the outskirts of Prague earlier this year to build a sleek, open structure that increased display space to nine cars from six.

He's on track to sell more than 1,000 vehicles in 2013, almost triple the number when he started in 1997.

"Skoda no longer has the status as the cheapest car," the 60-year-old auto salesman said. "We now have high-tech, beautiful cars. Good times are ahead."

Hyundai dealer Cervinka is unfazed by Skoda's resistance, pointing to the Korean brand's expansion.

"This place represents huge potential for us," Cervinka said, surveying his complex. "You can see we still have huge space to grow."

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