Automobile manufacturer Skoda — a wholly-owned subsidiary of Volkswagen group — has been going through a rough patch lately. Volumes of Rapid fell by 13.77% to 11,430 units last fiscal from 13,256 units in FY 14. The Superb fared just better with sales rising marginally to 1,254 units. However, the Octavia did very well with sales up a good 12% to 2,193 units.
One of the showrooms of Skoda in Mumbai’s central suburb of Powai was closed down two months ago due to poor volume growth. According to a source close to the development, poor volumes adversely affected the profitability of the dealer. As of now, Skoda has three dealers and six showrooms in the Mumbai and greater Mumbai
After the shutdown of the Powai showroom, Skoda has only four showrooms left in Mumbai and the rest of the two are in the outskirts of the city. A source close to the development said that volume or sales target given by the company was not achievable and shutting the showroom was the only option available.
“Skoda gave a sales target of 50 cars per month which we could not achieve. The losses incurred were eating into the profit of the other showroom, hence it was closed down,” said the source.
In the April-June quarter of FY 16, sales of Rapid increased by 15.25% y-o-y to 2,712 units while the same for Superb stood at 255 units compared to 257 units in the year ago period. Octavia volumes also saw marginal increase to 720 vehicles from 560 units in the first quarter of the fiscal.
Industry experts say that the original equipment manufacturers (OEMs) should take care of the dealers by giving them better and more products to sell and provide other incentives like bonuses based on performances and sometimes chipping in with a share of the rent at upmarket places, as the fortunes of the companies are directly linked to the well being of the dealers.
“SKODA India does not compensate the expenses of its dealers by paying rents nor does it incentivise its partners by enhancing margins. Showroom launches and closures are a comprehensive and continuous process of ŠKODA’s evolving business strategy,” said a spokesperson of the company in the response to an email by FE.
Currently Skoda offers only four products in India which includes the Octavia, Rapid Superb and utility vehicle Yeti. Due to the low volumes, discounts on Rapid and Superb currently ranges between Rs 50,000 to R1 lakh.
Earlier, FE reported that Skoda’s parent company Volkswagen has also started giving performance linked bonus to the dealers in order to retain them. Industry experts are of the opinion that Skoda has also resorted to the same strategy of providing incentives to the dealers but the company denied giving any incentives to the dealers.
Abdul Majeed, partner, PriceWaterhouseCoopers, said that manufacturers need to focus more in the product strategy, distribution and after sales service in order to sustain in the domestic market.
“If a dealer cannot sell the products it becomes difficult to maintain the existing cost structure. Then the only option remains is to cut the fixed cost which in this case means closing the dealership. If a company wants to be in a particular segment then it must come out with multiple products and bring in good value proposition for the customers,” added Majeed.