Skoda is coming to North America…maybe.
Obviously, this was a surprise news item. Automotive News broke this story, as Volkswagen AG has been trying to find a way to offset sales losses across the group. In North America, that means looking at the Volkswagen brand to see whether it is still viable to sell its products in this market. For Skoda, it is to offset the collapse of the Russian automotive market.
This could be a classic case of Peter saving Paul. Yet, it is more complicated than that. Let me explain…
The diesel emissions scandal created a huge setback for Volkswagen AG. The most affected market was the USA, thanks to its two-tiered emissions standards based on a group of ten states adhering to a stringent set of rules. While Volkswagen is trying to implement a fix for their affected TDI-powered vehicles, the brand was hit with a drop in sales since the news of the scandal broke. In fact, figures for May of 2016 in the USA show an overall drop of –17.2% with every vehicle line showing a loss over the same period a year ago – except for the Golf R and Tiguan. This crisis also sullied the reputation of the Volkswagen brand down to a series of social media memes and comedy routines.
In the past few months, many speculations, rumors, and conspiracy theories have the Volkswagen brand closing in this country within a short period of time. This is perhaps the wrong move for any manufacturer to do. With 67 years invested in this country, ceasing operations may be a way of saving face, but it will further create a chasm with loyal customers, enthusiasts and its USA dealer network. This is something that will be a huge loss on these stakeholders, regardless of the determination and justification given by the brass in Wolfsburg.
Where does Skoda come in? The Automotive News story presents a scenario where Volkswagen would be replaced by Skoda in this country. If it was only that easy.
There are many contingencies that need to be considered if this was the scenario that would be played out by Volkswagen AG. For one, there are 652 dealerships across the USA to transition. Is that more than enough to support both orphaned Volkswagen models and new Skoda products, if there is a brand transition? This operation will take more than just switching signage and property renovation.
Currently, Volkswagen sells seven vehicle lines – stretching from compact hatchback to a mid-sized premium SUV. They also sell gas-electric hybrid and battery electric models. As the TDI diesel was omitted off of Volkswagen's catalogs, Skoda would have to work with using familiar drivelines in order to make the brand transition smoother for consumers looking to trade in their older Volkswagens.
Speculation shows that Skoda would present four models in the USA – the compact Octavia, the premium mid-sized Superb, the Yeti compact utility and a future mid-sized SUV called the Kodiaq. Some may consider the Octavia as a step up from the current Jetta, but it can yield a higher price than similarly equipped Octavias. Enthusiast will miss the GTI, Jetta GLI and Golf R, but they would probably consider the Octavia RS models, if it becomes their only choice. Also, the Superb is considered a step up from the current North American Passat. One would have to look at pricing closely for the Superb to ensure that there not an overlap with Audi models. One would hope that a top trim Superb would not scale beyond $40,000 – and that is a realistic figure.
Pricing would also be a consideration for the Kodiaq, given its potential monumental task to compete is a huge market for families. Since no actual information has been released as to where the Kodiaq will sit in the marketplace, I would further shelve this until more details are provided about this new vehicle. However, the Yeti will be a different offering in this market. It appears to be in the same class as the Jeep Renegade, Chevrolet Trax and Honda HR-V. Yet, its target is really the Kia Soul – which I believe the Yeti will have plenty of advantages over. This gives transitioned dealerships a new kind of product to sell – hopefully one that will catch the American consumer's attention.
Also, has anyone considered the Chattanooga, Tennessee plant? Will that switch to Skoda production? That would take a longer transition, if Volkswagen AG does the brand swap. A shut down would have to take place for new tooling, then a restart with an entirely new line of vehicles down their assembly lines. This will be the most expensive piece of the transition.
There is some good news. Volkswagen of America already has an established distribution system. That would be the easiest part for such a transition to Skoda. The huge caveat will be whether US-bound Skoda models offer the same specification as similar Volkswagen models, then there would be smoother transition in service training and parts distribution in terms of the mechanicals.
In its entirety, this so-called speculative transition has one outcome: It will not work! A company cannot spin on its heels and swap branding on the fly. Nor can you just simply change car lines, assembly lines, parts inventory and dealership signage because of the errors of your ways. Smart people will know what's up…and will see the smoke-and-mirrors before the first Skoda arrives in this country.
I do offer three options for Volkswagen AG. One, is to keep Volkswagen alive in North America. You do so by adding a new vehicle to the Chattanooga line, keep the Puebla plant running to continue to feed this market, you look at transitioning from diesel to hybrids and electric propulsion and mount one hell of a comeback. If Mitsubishi can stave off extinction stemming from the wounds of an old financing scheme, so can Volkswagen.
The second option is to introduce Skoda to this market, but not as Volkswagen's replacement. This could lead to some interesting dealership arrangements. There are a couple of ways to accomplish this: Either pair them up with existing Volkswagen dealers in select markets, or create a separate network of exclusive dealerships. Either way, introducing the Skoda brand would provide opportunities for the current group infrastructure in this country to help build its reputation while working through Volkswagen's image issues.
The last option is a gradual transition between Volkswagen and Skoda. To abruptly switch brands would severely affect the current infrastructure that Volkswagen of America has in place, including the Chattanooga plant.
There is a lot to consider for Skoda to be able to sell their wares in the USA. How Volkswagen AG plays this card is something we all need to watch. The opportunity is there, yet executing it will determine the viability of the Czech brand in this market – along with Volkswagen AG's and the Group's reputation here.
Don't get too excited about Skoda's return just yet. Let them figure it all out before we see one at your neighbor's driveway.