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Volkswagen looking at ways to boost Skoda output, including new plant: sources

[March 20, 2018] By Andreas Cremer

BERLIN (Reuters) - Volkswagen <VOWG_p.DE> is looking at ways to boost production at Skoda, including building a new factory outside the brand's Czech home, to help it keep up with booming demand, company sources said.

Best known for its low-priced cars, Skoda moved last year into the fast-growing market for sport-utility vehicles (SUVs) with the new Kodiaq and Karoq models, and plans to launch another 19 models by 2020.

But attempts to increase capacity at its main Czech plant in Mlada Boleslav, where it builds more than half a million cars a year, are in limbo because the Kovo union opposes extending the work-week to Saturday, two Volkswagen (VW) group sources said.

Skoda has offered to create 3,000 jobs in the Czech Republic if labor leaders agree to additional shifts at the two automaking plants, a move management says could boost output at Mlada Boleslav alone by 83,000 cars a year.

"Additional capacity is absolutely essential to be able to meet continually growing demand," Skoda said in an emailed statement. "The company has been producing at full capacity for some time."

Once the butt of jokes in the West, Skoda has blossomed under nearly 30 years of VW ownership to become one of its profit drivers, even beating luxury brand Audi's <NSUG.DE> and BMW's <BMWG.DE> operating margins last year, thanks to its cheap labor and to VW's cost-saving modular production platforms.

Growing demand in Europe and China has helped Skoda's sales to jump nearly a third over the past five years to a record 1.2 million cars in 2017.

Sources said Skoda could miss out on about 360,000 car sales by 2020 if capacity is left unchanged. Production of Skoda models has been expanded in recent years in markets including China, India and Russia.

VW and Skoda are aiming to find solutions by the summer, the sources said, to help the brand with its goal to expand foreign sales to 120 countries, from about 100, by 2025.

Deliberations include searching for under-used capacity within the VW group, as well as investing in a new facility outside the Czech Republic where production could be shared with other VW brands, the sources said.

BOTTTLENECKS

"Of course we are always pleased if brands like Skoda develop very positively. But that also affects other brands where we have bottlenecks," VW group chief executive Matthias Mueller told Reuters TV last week when asked how he wanted to solve capacity constraints at Skoda.

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The Skoda Vision X car is presented during an event at the 88th International Motor Show at Palexpo in Geneva, Switzerland, March 5, 2018. REUTERS/Denis Balibouse/File Photo

"Our platform strategy thankfully gives us a chance to also react at short notice, meaning within a few weeks or months," he said, referring to the group's strategy of maximizing the number of parts used in common across brand and model lines.

Last year, labor leaders at the group's VW brand pushed for some Skoda production to be shifted from the Czech Republic to help offset declining output at German sites, fuelling concerns among some Czech workers and politicians.

It remains unclear where Skoda models could be built.

The VW brand's main Wolfsburg plant in Germany is grappling with falling demand for its top-selling Golf hatchback, but utilization has improved at a fellow German plant in Emden, which has been awarded production of another model and so sees no room to build Skodas before 2020, a VW source said.

Audi says capacity is tight at its main Ingolstadt plant in Germany, where some models are based on the MQB platform shared by Skoda.

VW's Spanish brand Seat is also operating near full capacity at Martorell after the new Arona SUV was added to assembly lines, and the brand has swapped production of the higher-volume Audi Q3 for the Audi A1 to ease workload at the factory.

But in the wake of the group's costly diesel emissions scandal, it is likely to want to tap any under-used capacity across the business ahead of building a new factory.

VW finance chief Frank Witter last week reaffirmed the group's goal to cut both capital spending and R&D costs to 6 percent of sales by 2020, from 6.4 percent and 6.7 percent respectively.

"I have said all along that ... 2017, 2018 and 2019 will be a dog fight, and I haven't changed my view," Witter, also Skoda's chairman, said on an earnings call.

At Skoda, management are determined not to lose momentum. "We are intensively pushing forward Skoda," CEO Bernhard Maier said at the Geneva auto show this month. "We are motivated from head to toe to continue along this path."

(Reporting by Andreas Cremer and Reuters TV; Editing by Mark Potter)

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