Volkswagen's Acquisition of Skoda Auto: A Central European Success Story
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Case Code: BSTR262 Case Length: 24 Pages Period: 1991-2007 Pub Date: 2007 Teaching Note: Not Available |
Price: Rs.400 Organization: Volkswagen, Skoda Auto Industry: Auto and Ancillaries Countries: Czech Republic Themes: Mergers, Acquisitions, Strategic Alliances |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Background - Volkswagen
VW's history can be traced back to the early 1930s, when Adolf Hitler (Hitler), the then Chancellor of Germany, approached Ferdinand Porsche (Porsche)13, an automobile engineer, to design a car for the common man...
Skoda under VW
In the early 1990s, VW's sales in the US were less than 100,000 cars a year. This made it imperative for the company to start looking for new markets to safeguard its long term interests. Around the same time, VW embarked on its multi-brand strategy in an effort to rationalize its brands. At that time, VW had four distinct vehicle brands - Audi, VW, SEAT and Skoda. Each brand had its own distinct brand identity, which VW made an effort to maintain. The company's strategy was to target different market segments with each of its brands. The Audi brand was synonymous with exclusivity, technological superiority and 'coolness'...
The Transformation of Skoda
When VW took over Skoda, the two companies had little in common. VW was known the world over for the quality of its engineering. Skoda on the other hand, was a peripheral player in the global auto industry, often mocked for its cars' unreliability and poor quality...
Integration and HR Issues
VW's approach towards transforming Skoda was gradual and incremental. The company used a collaborative and nurturing strategy in bringing about improvements at Skoda, and reportedly tried to avoid 'winner-loser' comparisons. From the beginning, VW made an effort to keep Skoda's brand identity independent. As one of the first steps towards improving Skoda's image in the market, VW decided to focus on the company's heritage as one of the oldest car makers in the world. It also talked about Skoda's history and past achievements, and encouraged employees to take pride in being a part of the company...
Production and Quality Improvement
After several decades as a state-owned company, Skoda's production methods had become outdated, and the company had no well-defined quality management systems...
New Product Development
The rationalization of production processes at Skoda was taking place even as new and improved models under the Skoda brand were being launched...
Image-Building
The launch of new and better quality cars was supported by an extensive image-building exercise across Europe, and especially in the UK, where Skoda had been the subject of many jokes over the years (Some samples: "What do you call a Skoda convertible? A dumpster."32; "How do you double the value of a Skoda? Fill it with gas."33). Long-time Skoda employees found the jokes annoying. "What you have to remember is that we made the best cars we could under real socialism...
Skoda in the New Millennium
In late 1999, the government of the Czech Republic announced that it was ready to divest its remaining 30 percent stake in Skoda...
The Road Ahead
As of 2006, Skoda was a well established mass market car brand. Analysts said that the main reason behind Skoda's success was the fact that in most markets, Skoda had the support of the VW brand. Customers reasoned that that they were buying a VW car for a lot less (especially as the Skoda cars shared many components with VW). It also helped that Skoda had been able to overcome its quality issues and had built a reputation for good value cars. Skoda's future plans included developing a leisure vehicle featuring advanced technology...
Exhibits
Exhibit I: Skoda - Vehicle Production by Model
Exhibit II: Skoda - Consolidated Profit and Loss Account (CZK Millions)
Exhibit III: Indicative Prices of Skoda Cars as of Mid 2007
Exhibit IV: The Three Basic Values of the Skoda Brand
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