Business Irish

Friday 17 November 2017

They laughed when I went to Skoda . . . but they're not laughing now

Eddie Cunningham, Motoring Editor

They can laugh at the old Skoda jokes now – but it has been a serious business dispensing with them.

The first year Skoda came here (1993) it sold 76 cars. Those who bought one risked relentless jibing.

The cars weren't even cheap and cheerful. Just cheap. The Favorit, a grim, budget five-door family hatch was yours for £7,250.

It is fair to say they have turned opprobrium into opportunity and conquest in the course of 20 years.

But business always has another joke in its locker and Skoda now faces stiff new challenges on, among other things, pricing and market share.

In a way, the stakes are as high as in 1991 when Volkswagen took over the world's third-oldest carmaker languishing in what is now the Czech Republic.

VW's tutelage, engineering, economic prowess and the sustained drive in Ireland of motor industry legend Eddie Thornton inexorably built sales.

Nowadays, however, Skoda no longer solely occupies the bargain basement. By its own admission it can't compete on price alone any more.

Budget marques such as Renault-owned Dacia can out-punch it on price. So people have to believe they are getting better value in a high-tech, well-equipped €23,000 Skoda Octavia than in a less sophisticated or equipped Dacia.

John Donegan (39) is brand manager, Skoda Ireland. He has already held a variety of key marketing and strategic posts in Ryanair, PostBank, Permanent TSB, Volkswagen Group Ireland.

He immediately confronts the challenges I outline: linking price, equipment, growth and sophistication – while not losing existing customers.

The number of dealers will increase from 22 to 27. They have identified five areas: Navan, Athlone, Longford, Ennis and Cavan to expand into.

"We're middle-Ireland cars. Our customers kept their heads better than most during the boom. They are practical people and loyal to us."

Heavy investment by mother-ship VW following its takeover of distribution here has helped.

Among the benefits is access to Volkswagen Bank which is lending a lot of money for car purchases.

It means Mr Donegan can say: "We have a plan to be in the top five with 8pc market share. We are on 6.8pc and sixth in the market."

That means there will be blood spilled as it tries to knock big names off their higher perches. Whose blood will it be? Nissan's or Opel's or Ford's? "We see good opportunities to overtake some of them."

Or Skoda's? It's a tough business and anything can happen.

Then a little bombshell: "We aim to be in the top three in 10 years."

Hold on. That means ousting Toyota, Ford or, unthinkably, Skoda's own master Volkswagen. But that's the project, nonetheless.

But while there are new or refreshed products being developed that keep its line-up competitive in the push for sales – from city car to large estate – there have been mistakes.

Mr Donegan concedes they got the pricing wrong on the new family-car Rapid and had to knock €1,600 off the diesel.

If ever there was a warning on price sensitivity, there is one.

I'm still not convinced by the Rapid. And say so. He nods at my assessment, then quietly points to sales of more than 450 this year.

He explains how their cars are taking sales from Ford and Toyota, how dealers are taking in Mercs as trade-ins against the likes of the large Superb.

A head of steam is building. Globally Skoda made 940,000 cars last year, will top one million this year, and hit 1.5million by 2018.

Twenty years ago there was the hope of selling more cars. Now there is the expectation.

"There's a massive opportunity. We'll move on steadily, not overstretch, keep our dealers profitable. The biggest challenge is staying true to our existing customers."

And the Dacias?

"I don't see them as a major threat. We are looking at anyone under 2pc market share and we want some of that business, as we do with the larger sellers. The only way we can grow is by conquest sales.

"There will always be a market for those (budget) cars but we don't want to get too uptight about them."

The advent of financial packages, especially PCPs (personal contract purchase) has blurred the focus on price alone.

Skoda Ireland has a core staff of just 16 behind sales of 5,000 this year. Crucially they can call on "huge support from across the VW group" which looks after VW passenger cars, commercials, Audi, Skoda and SEAT.

When Skoda came here in 1993 the total market was 64,150 cars. Many feel this year's won't be much north of that. Mr Donegan predicts 70,000. Others pitch it at 65,000 – 67,000. That includes pre-registrations where dealers register cars to keep market share and then sell at a discount the next month.

"No, no, we don't do much (pre-registering) at all. Don't believe in it."

He adds: "I think more people will buy cars next year. I'm confident of that. We are planning production on 75,000 to 80,000. There are signs of economic recovery. Private sector employment is up, banks are back lending, house prices in some areas are increasing so there are good signs. The industry is probably at its lowest ebb and things will pick up."

By the same token he doesn't see some marques surviving.

"I see consolidation. We are seeing a large number of brands who are doing less than 2pc market share. It is hard to see them surviving. Competition is important and I don't like to see brands leaving."

Many of Skoda's rivals are offering five, seven and even eight-year warranties.

Will they increase from three years?

"Absolutely not. A lot of those marques use the warranty as marketing and strategic tools. We don't think it is the right way to compete on the Irish market. We're going to stay with three years. I also question some of the terms and conditions of the longer warranties."

It might read like fighting talk but it comes across as low-key, confident and matter of fact.

And in its own way, it comes as near as anything else in the course of our interview to catching the mood of Skoda – 20 years after it started killing off the jokes here.

Irish Independent

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