CZECH REPUBLIC: Skoda chief says higher vehicle quality contributes to slow European sales - report
If the head of Skoda Auto is right, Europe's sluggish car market is in part a product of rising quality, as drivers keep their vehicles longer, Reuters reported.
"Cars these days have reached such a level of quality that while previously it had been usual to change them after three years, now the period is expanding to five," Skoda chairman Vratislav Kulhanek told Reuters in an interview.
That Kulhanek is comfortable talking about quality is a sign of how far the company he chairs has come, the news agency said, reclling that Skoda Auto, a unit of Germany's Volkswagen and the largest Czech company, was once the butt of Communist-era jokes, but has since made a remarkably successful transition to the market economy.
Rising vehicle quality, not just the poor state of the European economy, is behind the weak market, Kulhanek reportedly said.
"One issue that is not so important, is the question of job security, economic development in a given country," said Kulhanek, who said that factor had been overplayed, in his view.
Reuters said Skoda sales have soared, and, even in this year's sluggish market, unit sales edged up 0.7% in the first nine months of this year, to 335,597 though revenues dipped 1% to 111 billion crowns ($US3.98 billion), and net profit fell 5% to 1.47 billion.
But while the expanding life span helps explain why the European car market is expected to shrink by about 2% this year, it also suggests light at the end of the tunnel, the report said.
"I tend to believe, because this recession has been lasting for about three years, next year could be the first sign, and things could start going again in 2005," Kulhanek reportedly said, adding that will not be a good enough source of growth to drive the largest Czech exporter to its long-term target of making 600,000 cars.
Last year, Reuters noted, Skoda sold 445,525 cars - the small Fabia model, mid-range Octavia and limousine Superb - and hopes the improving second-half sales will lift it above that this year.
Skoda exports more than half of all output to western Europe, where it reaps the highest margins, but unit sales there have dipped 2.2% so far this year, and Kulhanek told Reuters the company could see only 2-3% growth there in the future.
It will be smaller and lower-margin markets in central Europe which will grow faster after they become part of the EU next year and as incomes gradually catch up with the West, he said in the interview.
Kulhanek also reportedly said the Czech market should eventually grow to about 240,000 new cars per year, compared with 147,754 last year, and others should follow the same pattern though competition will also get much tougher in central Europe.
Reuters noted that Toyota and PSA Peugeot Citroen are building a Czech factory for 300,000 small cars while Peugeot is also building a Slovak plant for a new car the size of Skoda's Fabia and Hyundai is also looking for a site in the region.
"They are marching in, there is no argument, mainly Toyota and Hyundai. They are concentrating a lot on central and eastern Europe...(where) we hold the largest chunk of all imported brands, so we are the pillage that is luring them," Kulhanek told Reuters.
According to Reuters, Asia is the next region in Skoda's sights and, in India, Skoda is the Volkswagen group's principal brand with Kulhanek saying it would sell 4,500 cars there this year and at least 10,000 next. He also reportedly said Skoda was also close to starting assembling cars early next year in Kazakhstan, with plans to make 10,000-15,000 a year there in the future.