Final Word from Friday, April 13, 2007
The unions at Škoda Auto are acting as though they're making a product that people can't live without. And it's not far from the truth. Škodas are flying off the lots in Europe because they're nearly as good as Volkswagens but cost thousands of euros less. The unions are convinced that the good times have only just begun, and they announced a strike yesterday to press for a bigger share of the future benefits. The dirty little word neither they nor management wants to utter is cannibalization. Low wages at Škoda have been paying for a loss in sales that the new people's car is causing on the upper end of VW's product range. Škoda is literally financing VW. It contributed 25% of VW's profit in 2005, and union leader Jaroslav Povšík revealed to Czech Radio that Škoda gave a loan to VW that exceeds Škoda's capital of Kč 16.71bn. VW's problem is how to tame its cash cow without killing it. [Czech Republic Group]