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Czech Republic: Carmaker Skoda Plans To Expand East And West

Prague, 13 March 1997 (RFE/RL) -- The Czech auto manufacturer Skoda is poised to make major new assaults on car markets both east and west after announcing profits of more than $5 million last year.

The profits, the first achieved by the company in the post-communist era, follow a net loss the previous year of about $65 million. Skoda Automobilova, which is controlled by Volkswagen (VW) of Germany, is reputedly the largest company in the Czech Republic today and is a shining example of how properly-handled reform brings success.

At the end of the Communist era Skoda produced durable but drab vehicles that sold well only in car-starved socialist countries. Survival in the open market seemed problematic until VW stepped in as a partner in 1991. The German company now has a 70 percent share of Skoda and has brought expertise, modern technology and above all investment -- more than $2 billion to date. The result six years later is a lean and aggressive company with a range of models that are bringing increased export sales. Production targets have been lifted this year to 340,000 vehicles, up 25 percent on last year.

A Skoda official told RFE/RL yesterday that the company is pushing ahead with plans to extend its production operations to Russia and Belarus. Economic affairs spokesman Milan Smutney said that basic agreements were signed last year with both those countries setting out Skoda's project intentions. Planning and consultation continues, he said, and Skoda aims shape the new enterprises at Smolenk and Minsk on the example of its successful Polish factory, which has been operating at Poznan for four years.

At Poznan, cars are being assembled with an increasing amount of Polish-supplied parts, which helps boost local industry. Smutney explained that Poland was formerly an important market for Skoda, but the imposition of 41 percent duties in 1991 caused sales to plummet. The Poznan assembly plant was established to circumvent the import duties, and sales are now climbing again.

Import duties and taxes are even higher in Russia and Belarus, amounting to more than 80 percent of the vehicle's value. Even with these barriers, Skoda says it sold 5,000 vehicles in Russia last year, and that its network of 40 dealers hopes to double that amount this year.

Local assembly plants would allow for price cuts. Smutney says the potential of the Russian market is almost unlimited. Skoda's new mid-size car, the "Octavia" goes on sale in Russia this year.

Smutney says Skoda is seeking Russian and Belarusian companies to supply parts and that local staff at the planned Smolensk and Minsk plants will be trained to Skoda's present standards. He says there are hundreds of qualified people in those countries who are idle.

The plan for Western Europe is to achieve greater market penetration by using the latest models to overcome any lingering doubts about improvements at Skoda since 1989. Feasability studies are being carried out on possible assembly plants in China, India and Egypt -- huge developing markets.

Although German expertise and finance have been essential to Skoda's success, the Czech staff see their own contributions as the backbone of the operation.

Smutney says VW's highest level of managerial involvement was to send 160 specialists from Germany to Skoda. That has been reduced to the present 80 foreigners, not all of them managers, among a total staff of some 18,000. He says foreign experts had major impact in departments like accounting, marketing and purchasing, and much less so in the production departments.

Skoda was hit by the death last year of its chairman Ludvik Kalma in a car crash. It has just named as new chairman Vratislav Kuhlanek, a big name in the Czech automotive parts industry. Meanwhile, deputy chairman Volkhard Koehler has left his post amid allegations of dubious real-estate dealings and reports of dissatisfaction over his handling of an internal probe into suspected kickbacks involving sale of a paint plant to Skoda.

Skoda yesterday denied Koehler was linked with corrupt practices or hindering the probe. He will be taking over a new role for the company, namely that of assisting in the development in former Communist markets.