Skoda delivered parent Volkswagen Group a memorable gift on the Czech value brand's 25th anniversary as a subsidiary of the German group: profit margins that topped those of luxury sister brand Audi.
Skoda's reward is a high-profile assignment. VW Group CEO Matthias Mueller has entrusted Skoda with the strategically critical development of a budget car for emerging markets with Indian partner Tata Motors.
"I have known Skoda for a long time now and I know what it's capable of, so it was pretty clear that we should give it leadership for the [subcompact] platform and therefor for this project," Mueller told reporters. "We feel very comfortable with that and are happy that Skoda accepted this responsibility, it's absolutely not an easy assignment, as you can imagine, but they will achieve it with verve."
Skoda was chosen because it has proved to be VW Group's benchmark for building stylish, yet inexpensive cars. Thanks to a surge in sales of one of those cars, the high-margin Superb flagship sedan, Skoda's 2016 operating income soared past the 1-billion-euro mark for the first time, rising 31 percent to 1.2 billion euros and lifting its return on sales to 8.7 percent from 7.3 percent in 2015. Not only was this a significant improvement over the previous year but Skoda even managed to leapfrog Audi to become the group's second-most profitable business after Porsche based on margins.
Audi's return on sales dipped to 8.2 percent last year from 8.8 percent in 2015 due to a range of negative effects including exchange rate headwinds, heavy pricing pressure and high upfront expenditure for new products and technologies. Factor in financial hits from VW Group's emissions-cheating scandal and the recall of Takata's defective airbags and Audi's profitability looks far worse.