Skoda, the Czech car maker historically not as well considered as many of its rivals, had better profit margins in 2017 than any of its siblings in the Volkswagen Group, other than Porsche. Surprising, huh?
Last year, it achieved profit margins of 9.7% – hugely better than Volkswagen’s 4.1% and Audi’s 7.8%, despite both of those brands selling more expensive models.
Not only is it showing up its VW Group siblings with profit margins, but it’s also one of the best profit margins in the entire industry.
There’s no doubt that Skoda deserves it success – operating profit was up 34.6% to €1.6bn – with good value yet excellently engineered and increasingly good-looking cars.
But there’s more at play here. Skoda has all the excellence of German engineering – thanks to being part of the VW Group since 1991 – but with many of the cheaper costs of being based, first and foremost, in Czech Republic, a traditionally weaker economy where manufacturing and people costs are considerably lower.
But the country’s economy is growing, and that's a positive – except when it comes to exporting Skoda cars. The stronger Czech Republic gets, the harder it will be for Skoda to continue to achieve those impressive profit margins.
At today’s annual press conference, finance boss Klaus-Dieter Schumann pointed to Skoda’s growth in the UK despite the depreciation of the British Pound as an example where it bucked the trend.
But he also admitted: “Should there be a sustainable strengthening of Czech currency (the Koruna), of course it will have a negative impact on our capability to be competitive.”
For now, the rest of VW Group will be looking on enviously at Skoda’s upward growth and excellent margins. But as the Czech economy grows, Skoda will need to react quickly to hold its own.