Skoda weathering storm

Volkswagen launched the Skoda brand in Australia not quite two years ago. Despite being highly regarded in its homeland and markets like Britain and Germany, it has struggled to find its feet Down Under.

In year-to-date sales, it's marginally ahead of where it was for the same period in 2008, which is good when most other car companies have seen their sales and market share dwindle, but Skoda was coming from a low base anyway.

Last year, just 237 of the Czech company's cars found homes in Australia (April YTD -- 818 total for 2008). Despite a facelifted Octavia launched at the Melbourne International Motor Show (more here) and new Octavia variants (Scout and RS diesel) introduced since May '08, the company has sold 30 units more this year.

Anecdotally, it seems like Skoda is gradually making itself known to automotive consumers, but it's a long haul. Here's why: Those who remember the Skoda brand from before Volkswagen's acquisition won't necessarily remember its cars with great fondness. On top of that, Skoda was introduced here about a year before the Global Financial Crisis began to put the squeeze on consumers. Finally, introducing a 'new' brand is not easy in even the best of circumstances.

So when does Volkswagen cry 'enough'? According to Volkswagen's local spokesperson, Karl Gehling, no time soon. Gehling is Volkswagen Australia's General Manager Press and PR, and he fielded some questions put to him by the Carsales Network during our recent sojourn to Europe for the first drive of the facelifted Skoda Octavia RS and Scout models.

Seat distributor Inchcape failed to establish Spanish Volkswagen brand Seat after about five years of trying. Is the situation for Skoda, actually supported locally by the factory and not just an independent distributor, more complex?

"I wouldn't say it's more complicated than that," says Gehling. "It's more Skoda's committed to building its brand and it's been working the last 18 months or so to work on the key recognition factors of the brand by trying to find ways of getting the message out there that Skoda's in the market."

In other words, building brand in the short term is currently more important to Skoda and Volkswagen than sales alone. But that being the case, what is the timeframe for the successful establishment of the Skoda brand name in Australia and when will the distributor change focus to sales?

"No timeframe," says Gehling. "Basically, the establishment of the brand never stops. The company's always working to maintain or build on the current recognition that we have and the strength that the brand has in the market."

Establishing the brand with no foreseeable profit in sight is tough. When Skoda is selling well in markets such as Britain, Germany and, of course, the Czech Republic, why worry about a small, remote market like Australia?

"It would be [too hard to establish the brand in Australia], but I think that if everyone had that attitude, you'd never expand into any new market," Gehling responds.

"Every company in the automotive world is looking to find new markets -- and if you have the right product and the right approach to gain additional volume in new segments and new markets...

"That's what Skoda is working to do; trying to expand itself beyond its traditional markets."

So brand building is the first item on the agenda in Australia and the importer trusts that sales will follow in due course -- whenever that may be. How is Skoda building the brand?

"A lot of it's sponsorship activities -- like the Tour Down Under is good leverage for the brand, because of the natural synergies with the European Tour de France and so on. It works well to try and link with what is a massive marketing campaign..."

Unlike Ford Australia, which supported the Australian Open for a number of years, but found that Ford divisions around the world were gaining from that sponsorship without recompense for the Australian arm, Skoda gains from the parent company's sponsorship of international cycling -- and the Tour Down Under has a specific local interest that benefits Skoda here without costing a fortune.

Gehling understands why Ford bailed out of sponsoring the Australian Open (which is now sponsored by Kia), but he doesn't believe that Ford's greater involvement in V8 Supercars subsequently was "the smartest move either".

Back to the cycling, is there some discernible link between people who follow the sport and a target demographic for Skoda? Gehling doesn't say so; it's more just a forum for reaching a larger audience than Skoda could manage through sponsoring other sports -- such as the different football codes. Unlike those car companies that sponsor AFL, NRL or A-League, Skoda's marketing reaches the whole nation -- and without the tribal associations of the football codes.

"It's a way of communicating with a large audience," Gehling confirms. "The figures they achieve with Tour Down Under [are] quite phenomenal in terms of the audience numbers."

Leaving aside the brand-building exercise, what will Skoda do in the way of managing its local product portfolio? There's a car missing from the current line-up, but bringing that car -- the Fabia -- to Australia presents some major challenges.

The Fabia would be sold in Australia as a light car, according to VFACTS market segmentation. That would place it in the same segment as the new VW Polo (more here). Is there a danger that the Skoda will be lumped in with the Polo in the minds of the buying public -- and lose out on sales? Speaking hypothetically, Gehling doesn't believe so.

"No, from a Skoda perspective, [where] each product sits, while they can be seen as competitors for Volkswagen product, they have a unique position in each segment -- they don't overlap any Volkswagen product directly. Obviously they can be the same sort of segments, but they offer unique skills, so to speak, that makes them appeal to different market segments."

Fabia is, Gehling says, larger than the Volkswagen Polo, but smaller than the Golf, so it shouldn't conflict with the two VWs or necessarily steal sales from them. But its landed cost here, with the Czech Republic's unit of currency going great guns, will be quite high -- and there won't be much room for Volkswagen and Skoda to move on specification to massage the price.

As an unknown quantity, it will brush up against established players like Peugeot's 207 and the Citroen C3. As for anything from Asia, the Fabia will be just too expensive an alternative for volume sales. However, Skoda has just commenced building the Fabia in India. Gehling anticipates that the Indian plant will be fully occupied with satisfying demand from the sub-continent.

"At this stage, we don't have a timeline for bringing Fabia to Australia," he says.

"It's something we'll continue to look at and if the opportunity arises, we can bring it in here and it's priced well, we'd certainly like to offer it, but we're still working on it.

"It obviously needs to be positioned correctly in that segment and it has to be price-competitive and specified to meet all the requirements people expect of Skoda. There's a strong value-for-money element in all Skoda products and, from a customer perspective, you're expected to find a well-specified package at a very competitive price..."

"We're working through the options as far as pricing and position to make sure we get a competitive vehicle -- and at this stage, it doesn't look like we'll be offering Fabia in the short term. That's why we're focusing on vehicles like Superb and Octavia."

That then leads us to ask, if the Fabia can't compete at the bottom of the light car segment, whether it could pick up sales in the premium end? Skoda has developed a concept car, the Fabia RS. If this vehicle goes into production, it could be a hero car for the brand in Australia and the whole question of landed cost would cease to be the problem it is for the cooking models. Gehling says Volkswagen and Skoda would welcome the car, but it's a hypothetical until such time as a production version is announced.

"Having a premium product as a flagship [for] Fabia to launch the product in Australia would be a great way to attract some attention and get the initial uptake; get people in just to have a look at the product, but at this stage, there's no production Fabia RS. What they've shown has been the concept. Hopefully they'll go ahead and produce it..."

In the meantime, how about the existing product in the range? How, for example, is the Octavia Scout doing in the local market?

"[Scout sales] are in line with what you'd expect for a single model which is diesel, manual..." says Gehling about the offroad wagon.

"We never expected it to be a large volume car. We don't have a DSG at the moment, to capitalise on the majority of buyers... in that segment."

Which brings us to the question: If any marketing potential in offering such a vehicle with a diesel engine is offset by the lack of appeal in a manual-only drivetrain, why won't Skoda bring in a DSG version? The simple reason is this: there's no such animal as a Scout with a DSG box. Gehling agrees that the availability of a Scout with DSG would have substantially improved marketability in Australia.

"It's all very possible; it's whether or not we could get the DSG. You could speculate as much as you like on sales potential, but it's... too hard to quantify what the benefit would be. It would certainly be a substantial lift in [sales] volumes.

"It's not made or offered in any market. Obviously the development [of DSG] for the Scout would require an investment on Skoda's behalf. On volumes alone from Australia, that [couldn't be justified].

Despite the Scout being nothing much more than an Octavia running raised suspension and some body cladding, engineering the DSG box for the car is not as simple as it should be, by rights.

"I don't think they would have any problems if it was simply a case of... bolting [a transmission] into place..." says Gehling, who explains that 4x4 Octavia models have not been available with the DSG box.

However, with the DSG transmission finding a lot of favour in Europe, it may yet find its way into 4x4 Octavia variants, including the Scout.

"It's not been ruled out completely, but... we'll see this year..." says Gehling, who stresses that the development of a DSG 4x4 Octavia variants is "a low priority".

If the DSG transmission for the Scout came to fruition, Skoda in Australia would also consider the 1.8-litre TFSI variant available in Europe. At present, however, the petrol-engined Scout is an unlikely prospect for the local market. Gehling believes that it's possible to add variants without actually increasing sales for the entire model range.

As an example, buyers who might find the Scout appealing for its practicality might buy a manual version anyway, despite the preference for an automatic/DSG variant. A Scout with DSG wouldn't necessarily lead to improved sales for the car; nor would a turbo petrol variant -- although logic suggests that the petrol engine and the self-shifting transmission would have to have some effect on sales.

"Just to ensure we don't get too much complexity [in the model range]," Gehling responds to the question of why the petrol Scout won't be sold here.

"Offering too many models is not necessarily going to create a significant improvement in sales because we're already targeting a very small audience..."

Another Skoda product, the Superb, is something of a gamble for the importer. With the unusual large car set to hit Aussie roads this month, it's an unknown quantity in marketing terms, but according to Gehling the Superb is surveying well in local market research.

"We've actually got some vehicles out on the road in Australia at the moment that we're using to get some sort of feedback from potential customers. It's been very positive. The car is obviously quite a uniquely positioned vehicle in terms of... what is effectively a large car based on the interior room, the luggage capacity with unique features like the 'Twin Door' rear hatch, which is unique in the market.

"What really makes it special is that it offers medium car economy, but without any other sort of compromises. In today's market, it's a very appealing prospect, if you need the size and room of a larger vehicle, but you don't want to have the running costs -- it offers a practical alternative."

So the Superb may be a watershed for the Skoda brand in Australia, but it may also just be too quirky for conservative buyers in this market sector. Time will tell.

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