Skoda's China revival plan outlined by top VW Group exec

Volkswagen Group is working on a plan to revive Skoda's flagging sales in China, where it was the company's only brand to register a volume decline last year.

China has been Skoda's largest single market since 2010 but the brand has faced increasing competition from domestic automakers. Last year Skoda's China deliveries fell 17 percent to 282,000 even while the country remained the Czech brand's biggest market. Skoda's global volume fell 1 percent to 1.2 million units.

VW Group China Chief Operating Officer Stephan Woellenstein said Skoda's turnaround plan will follow the template the group used to turn around the core VW brand's fortunes in the market.

"In 2016, we drafted a program to revitalize the VW brand consisting of various strategic elements that we internally called Move Forward, which has proved to be very successful,” Woellenstein told reporters on a conference call. "For the past several months we have been working on something similar with Skoda."

Without being more specific, Woellenstein said he recently finished talks with SAIC, one of the company's two Chinese partners, on additional measures to help Skoda "in the near future." VW Group also has a Chinese joint venture with FAW that builds cars for the Audi and VW brands.
 
Major pillars of the program that revived the VW brand included an SUV product offensive that included crossovers for its JV with FAW for the first time, the addition of battery-electric vehicles such as the e-Bora and e-Lavida and a mass rollout of fully connected models to appeal to Internet-savvy buyers in China. 

Overall, VW Group managed to outperform the domestic market with a 0.6 percent increase in sales in China in 2019, notching a new record with 4.23 million deliveries.

Skoda‘s overall business, meanwhile, remains highly profitable globally and its 8.4 percent margin last year was better than that of VW Group premium brand Audi. 

VW Group CEO Herbert Diess, who is also Skoda's chairman, first publicly expressed his displeasure with the Czech brand's problems in China more than a year ago.

Skoda's troubles in China come at a difficult time for the entire market. Growth gave way to contraction since the 2016 election of Donald Trump, who launched a trade war with Beijing soon after becoming U.S. president.

China's sales peaked at more than 24 million passenger cars in 2017, Trump's first year in office, before declining the following year for the first time since 1990 as consumers postponed purchasing big ticket items due to the tensions. What was initially expected to be a one-off decline for car sales, however, has continued and even accelerated because of the Coronavirus pandemic.

“This year China will struggle to crack the 20 million sales mark,” Woellenstein said, adding that in the month of February only 89 cars were sold across all of Hubei Province, which is home to Wuhan, the original epicenter of the COVID-19 outbreak. “From this point it could certainly take another three to four years to claw back the 4 million cars, coming from 20 or even 19 million. This is not something that can be done in 12 or 24 months.”

Woellenstein said the trade conflict led to a "real renaissance" for established strong brands such as VW as well as a few Japanese automakers at the expense of Western marques that struggled to gain a foothold in China over the last decade.

“They have gotten caught in the middle, failing to make inroads with customers of stronger international brands while being sandwiched in by successful upstart Chinese brands such as Geely on the other side. Renault is one prominent example," Woellenstein said. "The steady erosion of their business led them ultimately to conclude the costs of operating here outweigh the benefits,” he said. “At present, we are still confident we can bring Skoda back to a growth path like VW and Audi.”

Renault Group said last week it would stop selling its own-branded passenger cars in China and focus instead on light commercial vehicles and EVs in the market, effectively exiting the market after persuading only roughly 300,000 Chinese customers to buy its cars since 2016.

VW Group's Seat brand said on March 25 that it has postponed its plans to re-enter China.