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Czech News in English » Business » Škoda recovers on German car subsidies

Škoda recovers on German car subsidies

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Škoda Auto may reintroduce occasional Saturday shifts and hire around 1,000 agency workers to meet a recent surge in orders, company union chief Jaroslav Povšík told reporters yesterday. Czech media ascribe the upswing to the introduction in Germany, Škoda’s main export market, of a EUR 2,500 bonus paid to those who turn in their old car before buying a new one.

The top Czech manufacturer and exporter had to slow production in late 2008 as the global economic downturn reduced demand for new cars. The firm gradually moved from a six-day work week to a four-day week, ditching the vast majority of its 4,000 agency workers and curbing orders from component suppliers.

Škoda remained completely closed for three weeks between 18 December and 11 January. In January carmakers across Europe saw the poorest sales in 20 years. But February brought the first signs of recovery, after the German and some other European governments started subsidising the purchases of new cars, provided the buyers scrapped their old vehicles.

The car-scrapping bonus, also available in neighbouring Slovakia at EUR 2,000, allowed Škoda Auto to work five days per week instead of four. Other carmakers based in the Czech Republic, especially Hyundai and TPCA, also reported a boom in orders. The renewed demand has been mainly for smaller models.

Povšík says the management now wants to schedule some Saturday shifts to meet further growth in demand, especially for the Fabia supermini, as well as for Czech-made engines and gearboxes used in other models made within the Volkswagen group, Škoda’s owner. He says talks are under way about how current workers will be remunerated for weekend shifts, adding that some 1,000 temps should be hired through agencies on top of the current 700.

Besides the car-scrapping bonuses, Škoda’s relative advantage at the time of an economic downturn may be its lower prices, compared to more upmarket makes. Jan Procházka, an analyst with brokerage Cyrrus, told ČTK last week that some traditional buyers of “Passats and Audis may have to review their budgets and switch to [Škoda-made] Octavias and Superbs”.

Yesterday’s news, first broken by the news site, offers a spark of hope for a Czech economic recovery after a series of bleak reports of declining business activity and a predicted 2% recession for 2009. As well as reopening some temp jobs at Škoda itself, the recovery may be welcome by manufacturers of car parts and other subcontractors, who were previously the hardest hit in the Czech automobile sector.

Yet, Povšík warns against premature optimism. He told the news site that the renewed demand for new cars may be only temporary and too much dependent on the subsidies in Germany and may ebb again soon.

While at least temporarily revitalising the car industry across Europe, the costly incentive programme remains highly controversial. The governments that have adopted the measure have been criticised for using public funds to effectively subsidise private businesses. The Czech Republic, which does not subsidise car purchases, is now in return seen as benefiting at other countries’ expense.

Škoda recovers on German car subsidies image 25Kryštof Chamonikolas
is a journalist and translator living in London. He likes writing about business and politics.
You can reach him at [email protected]

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