Volkswagen has a lot riding on Skoda in China, the world’s third-largest auto market after the U.S. and Japan. Over twenty years ago, the German car manufacturer was the first player to set up joint ventures in the mainland with local companies like Shanghai Automotive Industry Corp. (SAIC) and First Auto Works (FAW).
But VW has lost momentum. Car sales growth in general has slowed. And China’s entry into the World Trade Organization has helped level the playing field for new rivals from the U.S., Japan and South Korea. Even though VW’s sales grew almost 30% in the first three quarters of this year, compared to the same period in 2005, by last summer VW had lost its longtime No. 1 position to General Motors Corp., which produces Buick, Chevrolet and Cadillac cars in China.
VW is determined to be the top player again by 2008, and Skoda is a major part of VW’s comeback strategy. It will produce three Skoda models in China--Octavia, Fabia and Superb--through Shanghai Volkswagen, its joint venture with SAIC, which also manufactures VW’s Santana, Passat, Polo, Touran and Gol cars for the Chinese market.
The first Skoda model in the market, the Octavia, will be unveiled in late November at the Beijing Auto Show. Aimed at the country’s “elite middle class,” it will go on sale in the first quarter of 2007 through about 80 dealerships in China’s most important cities, said VW China spokesman Kai Grueber in Beijing.
The TV, print, outdoor and digital campaign promoting Skoda “is built on three pillars--intelligence, attractiveness and dedication,” said Mary Fan, director of client service at Grey Worldwide, Shanghai, the creative agency behind the Skoda campaign.
Grey won the business last summer in a pitch against Ogilvy & Mather, Saatchi & Saatchi and local shop WE Marketing Group. Grey already handles creative for Passat in China as well as corporate branding and relationship marketing for all VW brands in China. The WPP Group agency has also worked on the Skoda brand in Prague since 1992, when VW bought the ailing Czech company. (At that time, the East European car was so unreliable after forty years of Communist neglect, the word skoda had come to mean "what a pity" in Czech slang.)
A TV spot shot in France uses computer graphics to show both traditional and modern Europe. Each “pillar” is represented by a statue. A fast-moving streak in Skoda’s trademark green brand color, representing the car, passes by each statue. One statue represents intelligence, or VW’s technology; another portrays beauty, symbolizing Skoda’s style; and a third depicts humanity, signifying the service and dedication that VW is known for.
Along the journey, the green streak picks up elements of each statue, symbolically communicating the three brand attributes, which flow together at the end of the spot when the streak arrives at Shanghai’s skyline. It ends with the brand’s Chinese slogan: “Intelligence that comprehends eternal attractiveness.” Print and outdoor ads mainly show the Skoda logo since the locally-produced Octavia model hasn't been officially unveiled yet.
Ms. Fan said VW hopes the Czech brand will offer new consumers a tantalizing combination of European style and technology at a lower price tag than European mid- and upper-size cars. The Octavia will sell for $19,000-$25,000.
“From consumer research, we knew Chinese people were not aware of the history of the brand, it’s like a newborn baby. We had to tell people this car is from Europe and has a long history, over 100 years,” she said.
VW is still the leader in sales of big sedans but today the biggest growth opportunities in China are small and mid-size cars that are affordable to the fast-growing urban middle class and potential customers in smaller cities.
Skoda will compete against models like the Toyota Corolla, Mazda 3, and, to some extent, another newcomer in VW’s brand portfolio, Sagitar, which is produced by its joint venture in China with FAW, a fierce rival of SAIC. Sagitar, based on VW’s Jetta model, launched last spring with an ad campaign by independent Chinese agency DMG.
VW has spent the last year looking at other ways to inject energy into its brand image and sales performance. The company shifted some decision-making power from its global headquarters in Stuttgart, Germany, last year when Winfried Vahland, former head of Volkswagen's Skoda brand, became CEO of VW's China operations.
Chinese car experts predict VW may introduce its Beetle model in China, VW has slashed production costs by up to 40% in China this year, compared to 2005. It is also investing heavily in the 2008 Olympic Games in Beijing as the official national automobile sponsor in China.
"We will achieve all three targets of our Olympic restructuring program for this year,” said Mr. Vahland, “stabilized market share, better sales than in 2005, and a positive financial result.”
But if not, he probably won't say, "Skoda."