Skoda comes full circle in bid to put identity crisis behind6 min read . Updated: 30 Jul 2014, 11:59 PM IST
To drive profitability, the firm is returning to where it startedestablish itself as a premium brand
Mumbai: 1,122 cars.
Skoda Auto India Pvt. Ltd sold 1,122 cars in June 2014.
With five cars in its portfolio, that’s dismal, even by the standards of dismal.
Think about it like this. Hyundai Motor India Ltd sells twice the number of cars in a day than Skoda sells in a month. How long has Skoda been in India now? 13 long years. Hyundai? Since 1999, 15 years to be exact. A few months back, Fiat Group Automobiles India Pvt. Ltd beat Skoda. In March 2014, Fiat sold 1,503 units compared to 1,481 sold by Skoda. And Fiat has just two cars in its portfolio.
Drill a little deeper into the 1,122 number. Skoda sold 1,122 cars through a network of 91 dealers. On an average, that’s 12 cars per dealer. Even the most magnanimous automotive consultant will tell you that a dealership needs to sell at least 40 cars a month to survive—pay rental and staff salaries. It’s obvious; Skoda is in a funk.
Sudhir Rao, managing director at Skoda, who’s been with the company for over two years, clearly has one of the toughest jobs in the auto industry. After years of identity crisis, in what should also be read as a big U turn, Skoda is going back to where it started—trying to establish itself as a premium brand. Rao has his task cut out. He also needs to revive the brand by addressing the issues related to the company’s sales and service—one of the biggest pain points for its owners.
“We have excellent products and are extremely confident about our product competence; however, we have struggled with our service reputation, some of it is deserved, some of it is not. Since our products are good, once we fix the service issues—we will be in a great position," says Rao. Ever since taking charge, Rao claims he has done everything possible from engaging personally to address the sales and service issues, rationalizing headcount, and improving the processes and systems.
His efforts aren’t visible in the company’s sales numbers just yet. Skoda sold 19,959 cars in the three months to June, a drop of 34% over a year ago.
According to people familiar with the company’s plans, Skoda is considering the launch of a seven-seater sport utility vehicle (SUV) in India in 2016. The model is likely to be slotted above the Superb. Given its premium positioning, the model will generate small volumes and is unlikely to prop up overall sales. Skoda plans to launch the Yeti (an existing SUV in its portfolio) with a facelift in September.
Also in the works is the new Rapid (a small sedan), which the company is currently re-engineering with the help of Mahindra Engineering Services Ltd. The company plans to execute the Rapid facelift in a manner that is more Asian in terms of its cost structure, yet not give up on the European characteristics of the brand, says Rao adding “that is the sweet spot we are trying to find".
Rao concedes volume growth is unlikely to turn positive any time soon. Skoda is not likely to launch another new vehicle in the next two to three years. But that doesn’t worry him. “Our operational focus for the business is profitability and premium imagery as compared to sales volume. We have a portfolio of five cars—Octavia, Superb, Yeti, Fabia and Rapid—and we are very comfortable with this product range," he says.
“They are caught in a niche," says Prathap Suthan, managing partner and chief creative officer at Bang in the Middle, a Delhi-based creative firm. “It’s no one’s cake and no amount of advertising can sell a fuddy-duddy looking car."
Ironically, the company has chosen to sharpen its focus on a segment that is shrinking. Car buyers are veering away from premium models— ₹ 15 to ₹ 20 lakh—and settling for the cheaper so-called compact SUV and sub- ₹ 10 lakh sedans, or moving towards nameplates such as Mercedes, BMW or Audi as most luxury car makers have reduced the entry barrier by introducing models that now start at ₹ 20 lakh.
“The way things are, I think they are heading towards extinction," says Deepesh Rathore, co-founder and director at Emerging Market Automotive Advisory.
It would be fair to say that Skoda’s positioning in the Indian market was mostly serendipity. When Skoda came into India, it was the only mass manufacturing European brand. “It did not deliberately set out to be a premium brand, the excellence of the product naturally gravitated the brand towards its current premium positioning. Having established the image, even though accidentally, why would we not continue it," says Rao, adding that the decision to continue positioning Skoda in the so-called value luxury segment is a well-thought one. “We want to be very clear , who we are."
All of this changed with the entry of Skoda’s parent company—the Volkswagen Group. Not only did sales start getting cannibalized, the higher pricing of Volkswagen models pushed down the Skoda models in terms of positioning and had an adverse impact. Subsequently, in a bid to crack the compact car market, Skoda re-positioned the Fabia in 2008 by launching a cheaper, stripped down model—a strategy which backfired causing further damage to the brand.
“The Volkswagen Group should have allowed Skoda to stabilize before introducing the Volkswagen brand cars. The launches in quick succession did more harm than good," says Gautam Sen, consulting editor at Auto India. In China for instance, one of the Volkswagen Group’s biggest markets, the company brought in Skoda after Volkswagen had stabilized, he added.
Faced with a tepid sales response to the Fabia, Skoda phased out the Fabia in India last year and doesn’t plan to bring the new generation or a replacement any time soon. “Skoda’s current state is the result of Volkswagen’s confusion regarding how to position the brand," says Rathore.
“It was a huge mistake," says Sahil Gilani, owner of a Skoda Superb, narrating a year-old tale. “I was driving on the Bandra-Worli sea link at 80km per hour. Suddenly a light pops. It says brake failure. I literally choked. Pressed the brakes, thankfully they were working. And just drove back home slowly." It only gets worse from here. A week back, Gilani’s car had been at the authorized service outlet of Skoda (JMD Auto India Pvt. Ltd) for a brake pad replacement. Gilani thought that might have been the culprit. It wasn’t. Skoda’s authorized service outlet got back saying the ABS (anti-lock braking system) unit of the car had failed.
“I don’t know what happened. It is an electronic part, not even a wear and tear item. The dealership washed its hands of, saying that if I wanted the car repaired, I would have to shell out ₹ 2 lakh."
Gilani was furious. He threatened to take the company to court. “The car was at the dealership for three months. Nobody from Skoda wanted to take responsibility. Finally, they offered to charge 50% of the amount. I made my peace. All I can say is it was very, very bad attitude."
Gilani is not alone. “I had big issues with the Superb forcing me to give it up two years back," says a chief executive officer (CEO) at a firm who declined to be named. “It took them long to diagnose the problem and they would take weeks to replace the parts as they would never be available," he said.
A lot of the company’s current problems can be traced to the legacy of dealers it appointed in its initial innings in India, says an auto analyst who declined to be identified. Clearly, their malpractices have done irrevocable damage to the brand, to the extent that no one wants to buy a Skoda anymore. “I don’t want to get into a discussion on our failings—our priority is to improve customer satisfaction," says Rao.
Rao maintains that things are changing for the better. “If we can still get CEOs and young leaders to drive our cars, that says something," says Rao, claiming that many of them have chosen the Octavia and Superb over other luxury brands.