VW's secret weapon in emerging markets

Czech carmaker Skoda celebrated the 85th anniversary of its first car in May - and looks set to mark the occasion with another record sales year. The Volkswagen subsidiary has a revamped image, and an eye on Asia.Skoda's stand at the Frankfurt motor show is perhaps a little more eye-catching than its cars, at least compared to the array of high-performance monsters on show elsewhere. The pristine display areas are complemented by a massive globe, regional-themed mini-bars offering local cuisine and an army of stunning women in white."We put a lot of effort, time and money, and resources into presenting ourselves, into building a stand with a theme, with a special message," Skoda's head of marketing Axel Schröder told Deutsche Welle. "We want to convey our atmosphere, our feeling to the customer."And that atmosphere is currently buoyant. Skoda recorded its best-ever sales figures in 2010, and based on January to June 2011 numbers, the company is again on course to better its latest annual sales record of 762,600 cars.The fastest-growing region for Skoda, like so many carmakers, is Asia, especially China. Well over a quarter of Skoda's 2010 sales were in the country, and in August 2011 that figure hit the one-in-three mark. Skoda chairman Winfried Vahland, who was CEO of Volkswagen Group China until mid-2010, used a simple catchphrase in his Frankfurt keynote address to describe the company's strategy: "Mission: New Markets."The VW Group has made no secret that it's chasing Toyota and General Motors for the title of world's biggest carmaker. But VW CEO Martin Winterkorn can hardly hide the fact that the German car giant is also being chased, particularly by the Korean upstart, Hyundai."We're pitting 115 years of experience against 20," Skoda's Vahland said in Frankfurt when asked about competition from Korea. "There's a clear tendency: Chinese customers love European design and prefer it to Japanese or Korean design.For sure, success in Asia could elevate Skoda's standing among its Wolfsburg-based owners, who have been concerned about the company's growing success in Germany.When Vahland took up his new post last year, a study showed Skoda to be the most popular and prolific importer into the "house-proud" German car market. Its latest "Superb" sedan, in fact, has outscored VW's more expensive equivalent in categories such as reliability and customer satisfaction."We will have to put Skoda on a shorter leash," Winterkorn told the Auto Bild car magazine at the time. "I grant them the success, but we cannot weaken ourselves."Vahland was anything but discouraged. On the contrary "I saw that as an encouragement to find our own path," he said. "Our brand has become younger, more dynamic. Skoda is not a cheap Volkswagen."VW and Skoda cars differ - yet their similarities are unmistakable, especially under the skin.Skoda's current range of cars is brimming with VW Group DNA, particularly the two long-running models that Schröder describe as the company's "backbone": the small hatchback Fabia and the mid-size Octavia family sedan. Both have backbones of their own, borrowed from the VW Polo and Golf respectively though not immediately apparent from the bodywork or the interiors."Being part of one of the largest groups in the world, obviously, has very great advantages. You have lots of resources, lots of know-how that you can use," Schröder said. "Especially our modular car engineering systems allow us to put exactly what we need into a car."By that, Schröder means the interchangeable nature of many key components made by the VW Group, allowing the company to realize economies of scale without making its cars appear identical across brands. Skoda‘s Superb family sedan, for instance, owes much of its existence to the VW Passat.If years ago Skoda had called one of its products "Superb," the company would have elicited howls of laughter. Yet in the two decades since Volkswagen took a stake in Skoda, car nerds the world over have been stripped of some of their favorite one-line gags, of which there are many such as: What do you call a Skoda on the top of a hill? A miracle. Or: How do you increase the value of a Skoda? Fill the tank with gas.Today, those jokes are not only stale, they're also inaccurate.But what still causes some chuckles is the name Skoda itself, which means "pity" or "shame" in Czech.Even if Skoda was once the target of Communist jokes by the West, the company was essentially the only former Eastern Bloc carmaker to have captured a respectable share in capitalist markets.The fact that little separates modern Skoda cars from their VW equivalents today except for a different badge and a lower price tag could be an ideal weapon to attack emerging markets like China. Since Skoda entered the Chinese marketplace in 2007, it has meanwhile sold more than half a million models.Another key focus for Skoda is India, where the company is targeting its latest city car, the "MissionL."  The model is larger than the Fabia but smaller than the Octavia, and its front end is reminiscent of VW's Golf and Scirocco models. The Frankfurt debutante is slated to hit the Indian market later this year, ahead of its 2012 global release.If Skoda hopes to achieve its ambitious goal of selling 1.5 million cars in a single year by 2018, the company is likely to find the extra numbers it needs in emerging markets like these.