Automotive Industry: The Czechs do it with Skoda, so should Detroit - by Bernard Avishai
It has become conventional wisdom that the reeling U.S. auto industry desperately needs to innovate. The hard part for Detroit is working out how. There is hope, even for an entrenched, sprawling company such as General Motors. Take Skoda, the Czech auto manufacturer (slogan: "Simply Clever"), which in 1991 became a part of the Volkswagen Group, the largest car manufacturer in Europe. Skoda is thriving today because its elegance-minded Bohemian designers have learned to exploit the access VW management has given them to virtually the entire spectrum of the conglomerate's components. At first, Skoda also simply put a Czech skin around the German-engineered Golf. But today, the company creates original cars for low-end, low-tech markets whose boundaries are carefully negotiated with other VW Group members (it reportedly exports 80 percent of its vehicles to 92 countries). Skoda's former CEO, Detlef Wittig, told me that his firm's latest model, the adorable Roomster, would break even after selling only 60,000 units a year. He said that Skoda now accounts for about 20 percent of VW Group profits. (In case you're wondering: Yes, the Roomster may take some customers away from the VW brand, but the VW Group as a whole will be better off for it. And no, Skoda's competitive advantage is not cheap labor: Czech labor is no cheaper than South Korean.
Government — or, more precisely, governments — can help only if they grasp the way manufacturing companies work. The shakiest firms will need a tariff regime that permits an auto group to import components from the country where they are designed or most competitively produced. The European Union's trade rules were a huge help in making it possible for Skoda to acquire components from VW Group companies, including the Spanish firm SEAT. Federal and state governments should help jump-start a grid for electric cars, as Israel is doing. Most important, perhaps, Washington should move to stimulate innovation in entrepreneurial companies along the whole supply chain — companies aspiring to provide new generations of components.
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