Skoda CEO reveals secret to huge profits

Skoda will make around one million cars this year, but while it's one thing to sell a lot of them, it's another to turn a profit. Multiple firms, especially those in the budget or mainstream area, have found themselves making cars but no money. Skoda returns 8% operating profits and isn't ashamed to say it. How is it possible? 

Zellmer says: "To start with, we are producing most of our cars in the Czech Republic, where factor costs are lower: personnel costs, costs of energy. And we have less bureaucracy, which is something that burdens other parts of Europe massively. The Czech Republic remains outside the eurozone, and while Skoda's factory employees are among the best-paid manual workers in that country, it remains an affordable place to be."

"So we benefit from that, but that's just one side of it," he continues. "The other side is that we of course have an efficiency programme where we lift a cost efficiency of €1 billion [£881 million] every year, in a running system. When I talk to my colleagues, I always talk about a sports team that has won a title, with 8%, and successful sports teams want to defend a championship. What do they do? They train harder, and that's what Skoda has embedded into the culture."

Still, Skoda is not a luxury car manufacturer, and some of those don't return these kinds of profits. Skoda is no longer a maker of 'cheap' cars, but if it were a UK consumer, perhaps we would refer to it as 'the squeezed middle'. That it continues to be a tremendous success in the face of new budget entrants, particularly Chinese ones, is particularly impressive.

"Some of those brands might stay, some of them not," says Zellmer. "As a brand that has been around for 130 years, we are not on everybody's shopping list, but the awareness is there, and that is a starting point It's relevant. New entrants need to make up for not having a legacy; they have to prove they're here to stay, and that's something you connect with Skoda: we're here to stay, we're here to connect with our customers, we are here to consult with our customers, to help if something goes wrong, to help if they have questions."

A personal touch? From a £25 billion company? Zellmer says it like he means it, and the company does routinely score highly in customer satisfaction surveys. "Very recently I missed my connecting flight to Prague," says Zellmer, with some exasperation, "and I had to talk to machines, trying to find out how I'm going to arrive where I need to be. It's wonderful to have human beings who will take you seriously and put some effort behind it, and this is where we are with the Skoda dealer network. It's human beings helping human beings, and this is an important part of the Skoda brand."

I like the phrase 'the dealer network'. Where so many companies talk 'outlets', 'centres' or some other synonym to make things sound less transactional, there's a straightforwardness to the notion of a dealer network: it implies people talking to customers. Maybe it's a cliché, but when Zellmer says "we always put our customers in the forefront", it feels genuine. "Our portfolio needs to be wide for an audience that wants to be responsible for their own decisions," he says. "We are not the ones that in an almost ideological way talk about battery-electric vehicles; we just build really good ones, and if consumers like them, they buy them."

While Skoda doesn't have individual models offered in both battery-electric and combustion-engined form, combustion and electric cars roll down the same production lines as each other, so the company retains a lot of flexibility in how many of each are made. The short of it is that, while Skoda's EVs are doing well, EVs in general are not selling as quickly as some companies hoped or, notably, legislators wanted.

"It is an evolution," says Zellmer. "We respect customers' preferences and cater for customer preferences, not an ideology. Of course we need to stay CO2 - it's a regulation we will adhere to, and we are on a good trajectory to meet CO2 compliance in the EU.

But he adds: "When in 2019 the forecasts were fixed on what the trajectory to a CO2 neutral automotive industry had to be, I think we were too ambitious. I hear a lot about the responsibility being on car manufacturers. However, at the end of the day consumers make their choices, so if you look at the trajectory we have achieved so far, to stay with 2035 as the stop for ICE technology in new cars, it's probably over-ambitious. And if you see something you have got wrong in your forecast then you have to correct it, and this is what we ask for as a car industry, and as VW Group. We need to revisit assumptions about when an end to combustion technology in new cars is still reachable ." Zellmer isn't the first car boss to say this, but when the company is this successful it carries more weight.

Also on the future, there is a subject close to the heart, one suspects, of the UK reader and enthusiast: the estate car. Skoda is an SUV/crossover builder as much as the next car maker, but still, it has form. "We have had many people asking us about the future of the sedan, limousine, combi [estate] segment," says Zellmer, "especially from the UK.

"This is a situation that is very specific for Skoda, because since 2016, despite the fact that the typical limousine/estate/sedan-shaped cars are actually on a downward trend [many car makers have ditched their large estates , we are on an upward trend with Octavia, especially combis, and the Superb combi. Actually since the most recent generation, we have sold over three million Octavia combis and over 600,000 Superb combis. We are the most relevant player in the segment, and these cars make up 20% of our overall sales volume."

Skoda most recently made headlines with the Vision O concept estate car. "That's clearly an evolutionary step of our Modern Solid design language, a car that is clearly identifiable with that kind of segment," says Zellmer. But its path to production won't be straightforward.

"We have a challenge there, because the typical range of combi drivers, mostly commercially engaged with these cars, is 30,000-40,000km a year," he explains. "So with the Vision O we have got to go onto the platform after the MEB platform, and that new platform will then of course offer electrified drivetrains, which could be purely electrified, but they could also be any other shape or form: PHEV, range extender or whatever.