Volkswagen's Acquisition of Skoda Auto: A Central European Success Story

            
 
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Case Details:

Case Code : BSTR262
Case Length : 24 Pages
Period : 1991-2007
Pub Date : 2007
Teaching Note :Not Available
Organization : Volkswagen AG, Skoda Auto Industry : Automobile
Countries : Czech Republic

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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"Central Europe is not an emerging market, it's reemerging. And its companies are playing the game of catch-up incredibly fast."

-Justin Jenk, a Principal with McKinsey & Co. in Moscow in 1997.1

"Skoda was a joke and it should never again be a joke.'"

-Karl-Gunter Busching, a Production Manager at Skoda, in 2000.2

"We are one of the three oldest car manufacturers in the world… and we are an example of how a car company can complete a successful transformation from a local producer into a global player."

- Vratislav Kulhanek, Chairman of the Board of Management at Skoda Auto, in 2001.3

Skoda Crosses The Half Million Milestone

The year 2006 was significant for the Skoda Auto Group (Skoda), an auto manufacturer based in the Czech Republic. That year, the company crossed the 500,000 units mark for the first time, in production as well as in sales of vehicles. Production, at 556,347 units, represented a 12.6 percent increase over 2005, while sales, at 549,667 units, had increased 11.7 percent.

Improved sales reflected positively on Skoda's financial performance as well, and in 2006, the company posted a revenue increase of 8.7 percent and an increase in net profits of 40.2 percent over 2005 (Refer to Exhibit I for the production and sales breakup of Skoda vehicles, and to Exhibit II for Skoda's Income Statement).

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Another event of significance for Skoda in 2006 was the launch of a new vehicle called the Skoda Roomster. The Roomster, which was positioned as a leisure activity vehicle, was Skoda's fourth model line after the Octavia, the Fabia, and the Superb lines. Skoda said that the sales of the Roomster in 2006, at 14,422 units, had been satisfactory. Skoda was the Czech Republic's best-known company, and in addition to being a major employer, contributed significantly to the country's exports. It was also one of the oldest car companies in the world along with Mercedes and Peugeot.4

Skoda was often cited as an example of a company from a country east of the 'Iron Curtain'5 that had managed to succeed in the market economy.

During the Cold War6, Skoda cars were widely derided in Western Europe for their unappealing looks and poor performance. However, after Skoda became a part of Volkswagen AG (VW) in 1991, its image was transformed.

VW played a significant role in improving Skoda's reputation and developing its capabilities, and by the late 1990s, the company came to be known for its high quality, sturdy cars, and had established itself as a 'value for money'brand.

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1]  "Central Europe's Best Companies,"The Economist, June 30, 1997.

2]  Tom Mudd, "The Last Laugh,"Industry Week, September 18, 2000.

3]  Luca Ciferri, "New Flagship Model will Complete Skoda Rebirth,"Automotive News Europe, July 2, 2001.

4]  "Slav Motown,"The Economist, January 6, 2001.

5]  The 'Iron Curtain' was the boundary which symbolically, ideologically, and physically divided Europe into two separate areas from the end of World War II until the end of the Cold War, roughly from 1945 to 1991. The countries that were east of the iron curtain (most of central Europe and all of Eastern Europe) were under the political influence of the erstwhile Soviet Union, and followed Communism. (www.wikipedia.com).

6]  The Cold War was the period of conflict, tension and competition between the United States and the Soviet Union and their respective allies from the mid-1940s until the early 1990s.

 

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