Volkswagen Acquisition of Skoda Auto

Presented by:Nishant Pratap Surbhi Malik Charu Pundir Jayanti Aanchal Shah Bobby Varun Nirbhay

Introduction
Skoda became part of Volkswagen AG(VW) in 1991. Example of a cross border acquisition of a company governed by communist empire(Eastern part of IRON CURTAIN) After acquisition Skodas image was transformed and by late 1990s it established itself a Value For Money Brand.

Background- Skoda
Set up in 1895 at Mlada Boleslav(Austro-Hungarian Empire), originally known as Laurin and Klement Co.(L&K). L&Ks main business was manufacturing and selling bicycles. It Ventured into motorcycles in 1899 and started manufacturing cars in 1905. In 1905, firm incorporated as a Joint Stock Company. During First World war it was involved in arms production also.

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In 1925, L&K was acquired by Skoda Plzen( Largest industrial house of former Czechoslovakia) and L&K vehicles were now sold under Skoda name. Skoda cars were known for elegant looks and technical superiority. After second world war, Skoda company was nationalized, all production and business decisions were subject to centralized planning, and information and technological exchanges with foreign companies were restricted. After Velvet Revolution, In 1991 VW acquired 31% stake in Skoda for $416 Million and by 1994 it raised it stake to 70%.

Background - Volkswagen
Volkswagen(Peoples Car) was the idea of Adolf Hilter and was designed by Ferdinand Porsche. In 1935,the first prototype of the car was made by RDA, the German Motor Industry Association. In 1938, cars were manufactured at a new factory called the KDF Wagon Factory(Also the first official name of car) later it was called the Beetle. After Second World War, in 1945 British took over the company and gave it the name Volkswagen. In 1949, the British gave the company to German Government and Heinrich Hordhoff (former senior manager at Adam Opel Gmbh) as its senior executive.

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By 1950s VW was becoming a Global Company and started exporting its vehicles to Denmark , Sweden , Luxemberg, Belgium and Switzerland. Factories were set up in South Africa ,Brazil and Australia to make Beetles. By Mid 1960s VW was making 1Million Beetles every year. In 1964, VW Acquired Audi Auto Union(AUDI), another German company known for its technological capabilities.

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In 1970s VW introduced cars like Passat, Polo and Golf in the global markets By 1980s, Golf became VWs most popular car. In 1990, VW acquired Spanish car maker SEAT to explore new markets. This was followed by acquisition of 30% stake in Skoda Auto in 1991.

Skoda Under VW
By early 1990s , VW had four distinct car brandsAudi, VW, SEAT and Skoda. The companys strategy was to target different markets with each of its brands. Audi Brand was High end brand perceived in the market of BMW and Mercedes. Low end market was covered by SEAT and Skoda. VW planned to give Skoda at the stand of Economy and Competence. VW used the Skoda brand to gain access to central and eastern Europe and improving its position in Global Car Market.

Transformation Of Skoda

Integration & HR Issues

VW used a collaborative and nurturing strategy in bringing about improvements in Skoda. VW decided to focus on the companys heritage as one of the oldest car makers in the world. Transition from state-owned company to a marketoriented one was expected to pose several challenges. VW realized Skoda employees had good engineering competence as well as a high level of professionalism despite the companys communist background. VW realized that Skoda employees needed to change their work philosophy.

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VW appointed Ludvik Kalma,a Czech,as the CEO of the company. In project work all the key tasks were handled by bicultural teams of people from VW and Skoda. VW adopted a look and see approach towards posting its German employees at Skoda. All the Czech employees had to learn to speak either German or English to improve their chance of advancement . According to Jan Kubes, a Professor at IMD,VW had the vision and heart to reawaken the dormant expertise of Skoda and its employees.

Production & Quality

VW rationalize the production process at Skoda to bring them at Par with its other plants. Implemented the Skoda Production System that tracked parameters like quality, cost, team cooperation and absenteeism in the factory. Skoda also implemented VWs Supplier Grading System to bring improvements across supply chain. Skoda and VW personnel worked closely with suppliers to ensure that the quality and reliability of components supplied improved. The Octavia plant worked on Fractional Concept of Manufacturing and used JIT principles.

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To promote flexibility and reduce repetitive stress injuries, all the team members were cross trained for different jobs. Most of Skodas suppliers set up their own plants in factory complex and were linked to the central production control computer system which helped streamline the production process and control costs. Only 5% of the work was automated and automation was used only for tasks where precision was critical to quality.

New Product Development

First Car launched by Skoda was Felicia in 1994. Both Petrol and Diesel version. Diesel version is same with VWs (Golf and Polo) and SEATs Ibiza Again followed by model the Octavia in 1996. Built on the same chassis as Audi A3 I,VW Golf IV, VW Bora/Jetta IV and SEAT Leon I/Toledo II.

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Introduced the Model Fabia in 1999. First car to use VWs PQ24 platform. Great success in Europe. Car of the Year by British Auto magazines Auto Express and What Car. Awarded Golden Steering Wheel by German newspaper Bild am Somntag No. 1 in Austria and Czech Republic and No. 3 at International in 2000 according Auto 1. survey.

Image Building
Extensive image building exercise (Eu,UK) SKODA = JOKE !! across Europe! Skoda employees were annoyed as they made best cars they could under real socialism. Were able sell those in West!

Volkswagen Efforts..
Introduced new promotions aimed at making Skoda acceptable to customers. Underlined Skodas Czech roots.(rich history and heritage) Approach was similar with beetal in U.S. Came up with series of funny, self deprecating advertisements.(late 90s) Later promotion used Taglines!
Aggressive direct marketing Used humor to sell carsunusual but worked out Showed Skoda honest and down-to-earth. Celebrity endorsements

Resulted In!!.....
By the end of 1990s !! Image had gone significant transformation. Created mass market car brand in Europe. Central Europes biggest car manufacturer. Worldwide Skoda cars sales were improved significantly. Core of brandTop positioning in customer values and elegant styling.

Skoda In New Millennium

In year 2000, Volkswagen acquired remaining 30 % stake for $350 million, however they allow Skoda to work independently Skoda had its own brand image and they have three basic values Intelligence Attractiveness Dedication Between 1991-2000 Volkswagen invested around 2.6 billion in Skoda and during the same period their revenues increased from 500 million to 3.7 billion

  

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To improve Skodas brand image in UK and other western Europe in early 2000, the company employed Advertising agency Fallon Public relation firm Sputnik Communications Direct marketing agency Archibald Ingall Stretton In 2002, Skoda launched its most luxurious car the Superb With the launch of Superb, Skoda wants to discard their image that they can only make low end cars In early 2000 Skoda built its handover center in Mlada Boleslav

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Skoda acquisition gave Volkswagen a significant share in Central and Eastern Europe Now, company targeted markets like India, China and Russia with their Skoda brand Volkswagen entered India in 2002 with launch of Skoda Octavia which went to become one of the best selling cars in super-premium D segment in the country and after that they came up with more cars In 2004, Volkswagen announced a new strategy for china, under which they introduce multiple brands at different price points

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In April 2005, Skoda signed a cooperation agreement with Shanghai Volkswagen to produce cars in china We regard China as being one of the strategic markets for the future development of Skoda brand said by the chairman of Board of Skoda in 2004 Volkswagen also used Skoda brand to spearhead its entry into Russia In 2006, Skoda launched Roomster , the first Skoda car to be built using Volkswagens modular philosophy As of now, Skoda has presence in more than 90 countries around the world

Skoda Crosses Half Million Milestone

Skoda was a joke and it should never again be a joke ---karl production manager The year 2006 was significant for skoda , czech republic based auto maker First time company crossed 500000 units mark production increase 12.6 % well as increase in sales was 11.7% Revenue increase 8.7 % and net profit jumped to 40.2% Another significant event was launch of skoda roomster which was positioned as leisure activity vehicle and sold around 14422 units

The Road Ahead

Skoda is now well established mass market car brand Success of skoda was support from vw brand in most of the market The customer perceived skoda as vw brand which was available at lesser cost as most of the component were shared with vw skodas future plan included a leisure vehicle featuring advanced The company showcased a concept car called skoda joyster at auto salon in paris

Competitors
Due to market saturation at North America, Western Europe and Japan, major competitors Resaults looking for emerging market. Skoda and Renault are close competitors, Renault itself launched low priced model like Dacia, Logan. However analyst have word for Skoda.. the perfect template of an eastern European firm doing well