Skoda to lead India project as VW looks to decentralise power

17 July 2017

Skoda to lead India project as VW looks to decentralise power

17 July 2017

As part of a company-wide restructuring program, Volkswagen (VW) is looking to decentralise power from its German headquarters and give its brands more control over their projects. This was a vow made by CEO Matthias Mueller, which is now coming to fruition with Skoda.

The German group is looking to build a low-cost vehicle for the Indian market, and has decided to hand responsibility of the project to the Czech brand, its first major international project since VW took control in 2000. It signals a shift in VW’s thinking, with the 12 brands nestled within now gaining more influence.

Skoda, which built cheap runabouts during the Czech Republic's Communist era, is studying whether it can adapt a low-cost production platform developed by Tata Motors. The firms are also looking at potential joint development of components. The move would give the VW Group a foothold in a market it has yet to tap and help it work towards its goal of becoming the leading global vehicle manufacturer.

The move to decentralise power stems from investor and management fears that VW's current structure was becoming too authoritarian. This, it is believed, led to an environment which culminated in engineers installing illegal software to cheat diesel emissions testing and, ultimately, the Dieselgate scandal. With staff focused on meeting targets set by bosses remotely from the company’s headquarters, and fearful to highlight problems, the ‘cheat devices’ have cost the company at least €22.6 billion in the US, as well as creating the need to issue recalls of millions of vehicles.

Some VW Group investors say there were other causes of the crisis in particular that the company was not open to outside scrutiny. They want it to appoint more independent directors to oversee executives and to hire more managers from outside the group, rather than filling top jobs with company veterans.

However, speaking to business representatives in May 2017, Mueller admitted that his plans for decentralisation were not easy.

He commented: ‘There are definitely people who are longing for the old centralistic leadership. I don't know whether you can imagine how difficult it is to change the mindset. You are permanently caught in a field of tension based on the question of how much (decentralisation) the company can tolerate and how much can it not.’

The VW management’s grip over the whole group has also been responsible for some of its key failings in certain markets, according to some industry analysts. They believe that the company is not focusing on individual strengths and this means expertise is not being used. VW had struggled prior to Dieselgate in the US, where it failed to develop a vehicle for local tastes, while its low-cost Lupo model was dropped from production after less than 10 years, and a small car partnership with Suzuki Motor collapsed.

Therefore, the move to allow Skoda to lead the India project makes sense, especially based on its history prior to its acquisition by VW. The partnership has reportedly been under discussion for more than a year, with Tata expected to use its own Advanced Modular Platform (AMP) to spawn a range of products as part of the alliance.

Tata will focus on engine development as VW units are too expensive and it is thought to be interested in using Volkswagen’s electrical technology as well.

Skoda has seen a revival in recent years, with profit in 2016 up 32% year on year to €415 million – not too far off half the €932 million profit margin of Volkswagen Group sister brand Porsche.

Photograph courtesy of Skoda