New Delhi: Volkswagen AG’s Czech brand Skoda Auto AS will stop producing its Fabia compact car in India because the company was incurring a loss on selling the model, according to two people familiar with the development.
Skoda, will, however, keep selling the model till the end of the year or until existing stocks are exhausted.
“The company is still finding it difficult to break even on the car,” said a Skoda dealer, requesting anonymity.
Successive price cuts over the years to boost demand have seen this car shedding almost 40% of its initial price tag since its launch in 2008, squeezing margins. The Fabia’s relatively low level of localization of parts has made it very expensive to produce and the problem was compounded further by the depreciation of the Indian currency.
Skoda said it will pause the production of Fabia and focus on strengthening the company’s presence in the sedan segment.
“Skoda is in the process of strengthening its model range and as a part of this process, Skoda is contemplating a pause in production of the Fabia in India,” the company said in an emailed reply. “Skoda’s immediate focus is to strengthen its presence in the sedan segment with the upcoming launches in 2013/14. The Rapid in India was the first model launched as a part of our global 2018 growth strategy and we are happy with its performance, we expect future launches to further complement our market share.”
In April, Skoda sold a paltry 115 units of Fabia. Earlier this year, Honda Motor Co. Ltd withdrew its premium Jazz hatchback for similar reasons—the car was just too expensive to produce.
Skoda was losing as much as Rs.1.5 lakh per car and the company was deliberately refraining from aggressively marketing it. Skoda sold 3,343 units of the model in the year ended 31 March, according to automotive industry executives, who declined to be named.
According to another person familiar with the development, the move is intended to make room for Volkswagen’ Polo.
“While globally VW as a brand is considered to be stronger than Skoda, in India it is vice-versa and that has impacted the sales of Volkswagen cars,” said this person requesting anonymity. “The VW Group is looking to change this strategy.”
Skoda is unlikely to re-launch the Fabia before 2015 and it’s not clear if the successor will be a modified version of the existing car (SK 250) or the all-new Fabia (SK 260) that’s due for an international launch next year. Given the low demand for the Fabia, the option to bring it back to India has been put on hold.
This decision to discontinue the money-losing Fabia is also intended to help Skoda Auto India focus its resources on new product launches and customer satisfaction, which has been the Achilles’ heel of the company. The company is betting on the new Octavia, which it hopes will become a segment leader after its proposed launch in August.
“We can redeploy our resources from the unprofitable Fabia towards brand-building for our other products and dealer network expansion,” said a company official.