Prague: Czech carmaker Skoda Auto is looking to partner with an Indian automaker to grow its business in a market that is fiercely competitive on pricing and where it has failed to consolidate its position in more than two decades of existence.
The company believes that finding a local partner is a “very attractive” scenario as it aims to make deeper inroads into the Indian market with the help of a domestic entity that has close ties in the supplier ecosystem, an in-depth understanding of local customer preferences and can reduce the European carmaker's costs in the country's “marginalised” market.
The Skoda brand has been present in India for over 20 years, but it is now looking to double its presence in the world's third-largest automobile market. Klaus Zellmer, chairman of Skoda Auto's management board, said the company is currently in talks with several potential partners, “carefully” looking for a company that fits the industry and customer preferences to help Skoda achieve cost-effective manufacturing in the country, making India the “second stop” for the brand after the European market.
Škoda Auto is part of the German Volkswagen Group.
“We believe very much in this scenario that we find a partner in India who is more in sync with the society, customers, industry and all the prerequisites, so that we can succeed. We will be very careful in choosing the right partner, who should be complementary. We are bringing something. We want our partner to bring something as well. We want this partnership to not be opportunistic – but full of opportunities,” Zellmer said.
Zellmer said although India is Skoda's most important global market after Europe, it is also the most competitive and aggressive, with price wars often breaking out in highly sought-after segments such as compact SUVs.
“India is not only the most attractive region for us outside of Europe, (but) it is also the most competitive environment you probably find in the automotive market currently. You have many new competitors, new entrants, new cars. So it is really a predatory environment,” Zellmer said.
Skoda is preparing to launch a sub-4-metre compact SUV with 75% local content – the highest for any product so far. This segment accounts for 50% of the SUV market volume, and is extremely competitive where models like the Tata Nexon and Maruti Suzuki Brezza reign supreme. The product will be available to customers early next year.
The company is also adding more retail touchpoints to attract “more and more customers” to the product, according to Zellmer.
Zellmer said Skoda has “learnt its lessons” from its experience of being in India for 20 years and being unable to achieve its initial sales targets. Skoda expects its new compact SUV, which will also be exported from India to other markets, to give it a 4% segment share in the sub-compact SUV market.
“…This is the learning. Often we build cars to our expectations and they are over-engineered. And over-engineering always comes at a price and that price definitely weakens our competitive position. So, we need to learn, we need to be aware of the change. Where is the engineering ingenuity of the Skoda brand, and how to strike a balance between cost and price. We need to be competitive on cost without sacrificing the quality, fit and finish that European cars are known for. The sub-4 metre car is a good example of this. We have been able to reduce costs significantly while maintaining quality. This approach will continue with future models, making them even more attractive to the market”, Zellmer added.
According to Zellmer, a local Indian partner can help the company achieve better cost efficiency by helping it strike more beneficial deals with potential suppliers.
“We can leverage their local capacity (of the local partner) because they are closer to the market than us. In terms of procurement and sourcing, they have certain connections that we may not have and hence they are able to get the best prices,” he said.
Skoda expects India to become its second-largest market when sales of its sub-compact SUV and refreshed model line-up start picking up from 2025. Despite the fragmented nature of India’s automotive market and its competitive nature, Zellmer argued that India is still an attractive bet for Skoda.
“In terms of leverage, India is by far the biggest potential. In absolute numbers, we are expecting to sell 4.2 million cars in India. It is the third-largest automotive market in the world. Now, of course, the United States and China are way ahead. But if you want to be part of a play where you know the growth is going to be massive and is something you are going to be a part of, you have to be fully involved and as early as possible,” Zellmer told Mint, adding, “The most attractive thing for us is to use India as a hub for the ASEAN region as well. It is a perfect combination of sourcing and engineering in India and delivery to other parts of this world”.
The reporter was in Prague at the invitation of Skoda Auto.
