Skoda to take on imports from Korea

Skoda, the Czech car maker controlled by Volkswagen, has revealed an ambitious plan to double production in a worldwide assault on the "economy" car market.

The drive will be spearheaded by Skoda's new medium-sized car, the Octavia, which will be used by VW to compete with imports from Korea and Malaysia. The speed with which Skoda developed the car provides some unpleasant lessons for BMW as it struggles to define a role for Rover.

The Skoda Octavia is a stretched version of the next generation VW Golf. Expected to be priced at under pounds 10,000, it uses the same engines, gear boxes and suspension parts as a pounds 15,000 Audi, with just 40 per cent of the car sourced from the Czech Republic or Slovakia.

By raiding VW's vast development programme, costs have been kept to a minimum. Skoda is sensitive about the figures for political reasons, but it is believed just DM200m (pounds 87m) has been contributed by Skoda to its German parent, which owns 70 per cent of the shares.

Since VW took a stake in Skoda in 1991, it has invested a total of DM1.8bn (pounds 780m), hardly an excessive amount given that this has resulted in one new car, another heavily revised one, and a totally refurbished factory.

The brand new, state of the art assembly hall at Mlada Boleslav uses "modular construction" techniques, where dashboards, seats, doors and the car's nose section are built to order by separate component suppliers working on-site. These "modules" are bolted into the car on the production line, dramatically reducing Skoda's stock levels.

The result is, according to Skoda, the cheapest production facility in Europe. With the Octavia, Skoda plans to raise production from 209,000 cars built last year to 400,000 by 1998. Factories assembling cars in kit-form are proposed for China, India and Egypt.

VW's trump card is the low cost of Czech labour. Absolute productivity per worker is no better than average, but Skoda workers earn in a month what their German counterparts cost VW for less than two days' labour.

Rover would not recognise a comparison with Skoda, but some motor industry analysts are increasingly asking what BMW is getting for an annual investment in the British concern of pounds 500m. Hilton Holloway, of Car Magazine, argues VW is making much more efficient use of its in-house development know- how.

"It's a much more intelligent use of common parts and platforms. When a mainstream company like VW can make so many different cars out of the same components, it's an object lesson to other manufacturers."

Cost pressures have dictated that the Octavia will not be sold in the UK in right-hand drive form until the beginning of 1998.