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January 07, 2021 01:00 AM

Skoda has big growth potential but will not go downmarket, top VW Group exec says

Nick Gibbs
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    Skoda models such as the Octavia share the same platforms as more expensive VW brand models, but are cheaper to build.

    Skoda has the "biggest growth potential" among Volkswagen Group's volume brands because of its appeal to more traditionally minded budget buyers, VW Group's sales chief, Christian Dahlheim, said.

    The brand’s customers have a social status classed as middle to lower, and seek functionality from their car above other needs, Dahlheim said.

    "Skoda is ideally positioned to tackle segments where people are not able to afford higher priced cars," Dahlheim said during an online presentation to analysts focusing on the positioning of VW Group brands. "On the volume side in percentage terms, Skoda has the biggest growth potential."

    Skoda will not be repositioned to compete with Renault's low cost brand Dacia, Dahlheim said. "We don't like that comparison because we do not want to reduce Skoda to tapping into that competitor," he said. "Skoda has fabulous competitors with the French brands and, of course, Ford."

    Skoda's "Simply Clever" marketing slogan demonstrates the brand's customer group, Dahlheim said. Skoda "should take customers from other brands, not our own," he said.

    The VW brand will remain a volume brand, targeting what Dahlheim called the "Top Volume" sector. Most VW customers buy their cars through leasing or financing and need high residual values, he said.

    Skoda can win more customers in the "traditional mainstream" buyer group without going downmarket, Dahlheim said.

    VW Group's other volume brand, Seat and its Cupra performance arm, brings the young customers to the group, he said.

    VW brand challenger

    Skoda has been problematic for the VW Group because its lower production cost base in the Czech Republic gives it a price advantage over VW brand cars using the same platforms that are built in high-wage Germany.

    Reports in the German press in 2019 suggested VW Group CEO Herbert Diess was looking to move the brand more downmarket. Skoda reassured employees that it would not be making drastic changes.

    Skoda has consistently beaten the VW brand on profit margins in recent years and remained profitable in the first three quarters of 2020 despite the pandemic.

    Skoda's global deliveries fell 21 percent to 721,884 in the first nine months of 2020, according to VW Group's third-quarter report.

    In Europe, Skoda's vehicle sales have held up better than the market. The brand's European sales fell 17 percent to 568,280 in the first 11 months of 2020 in a market down 26 percent, according to data from JATO Dynamics market researchers.

    China action

    Skoda is less successful in the key market of China.

    In the first 10 months, Skoda was outsold in China by VW's new Jetta budget brand. Skoda's Chinese sales fell 44 percent to 118,230, while Jetta volume reached 134,433, according to data from Bestsellingcarsblog.com.

    VW began Jetta sales in China last September with two budget SUVs, now expanded to three.

    Dahlheim said there was a "need for action" by Skoda in China to arrest the decline.

    The Jetta "squeezes Skoda a bit and it's no secret that Skoda is struggling in China," he said. "That is something we're looking with our joint venture partners - how to position Skoda to be successful again."

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