After Fabia's exit, Skoda looks to fill hatchback void with new small car

Rachit Vats Posted online: Saturday, Jun 28, 2014 at 0000 hrs
Mumbai : Czech carmaker Skoda Auto’s Indian arm aims to fill the void in the hatchback space, following the phase-out of the Fabia in early 2013, with a new car. The company aims to replicate the success of its entry-level sedan, the Rapid, with a new compact, which could be in addition to the much-anticipated global launch of the Fabia in 2015.

“We are working on improving the Rapid, to develop it in a way that it is more Indian. Rapid is where our experiments begin to see how far can we merge the Czech and the Indian approach to product development. It will be a stepping stone to profitably bring another small car for the Indian market,” said Sudhir Rao, managing director, Skoda Auto India.

The company did not give a clear timeline on how soon it might consider introducing the new model built on the Rapid, though it indicated it could start the development work in 6-9 months. Skoda Auto has been feeling the pinch of not having a small car, a segment that makes up 70% of India’s passenger vehicle sales.

“We are looking at multiple ways to fill that segment in the Fabia space. We do want to be somewhat of a volume player, though it is not our primary objective. More important is to run the business with customer satisfaction, which is financially sustainable and profitable. Volumes will follow when we are able to achieve the first two,” said Rao.

Amid declining auto sales, Skoda's volumes have done quite poorly, declining by 31% in FY14 to 19,959 units compared with the year-ago period. In May 2013, Skoda stopped manufacturing its hatchback Fabia, which contributed 44% to the company's total sales in FY12. After the Fabia, Rapid became the volume generator, contributing 66% of the company's total sales.

“If you have to go down and have a much wider appeal, it's difficult to ignore the small car space. Skoda Auto has excess capacity after they phased out Fabia and it could significantly leverage that with new introductions,” said Yashesh Mukhi, auto sector analyst, Morgan Stanley.

“Eventually, the company could look at both hatchback and a smaller sedan to get volumes,” he said.

Besides not having a presence in the hatchback space, the loss-making Skoda Auto has been struggling with poor customer service and after-sales.

“One thing that is obvious is that we have disengaged ourselves from the small segment with the Fabia being phased out, which is causing the decline. In addition, there are aspects of business where we are not great, such as customer service and after-sales. That is an area where we are going to put all our efforts into. It is number one priority,” said Rao.

The company did not give away the loss numbers for FY14, though it has taken steps to arrest the decline. Skoda has trimmed its India workforce by 15%, sources said.

“Despite tough market conditions, we have reduced our losses. The operations are sustainable and efficient,” said Rao.

The company has also trimmed its dealership numbers, from 100 last year to about 85. However, it continues to have a presence in 65 cities.