Abu Dhabi, UAEMonday 21 October 2019

Skoda prepares for potential Brexit pain

After finally winning over the UK driving public's affections, Czech company is facing what could be a heavy blow if Britain leaves EU without a deal

Skoda is 'worried' about a possible 'hard Brexit' and its effects on the Czech car maker. EPA
Skoda is 'worried' about a possible 'hard Brexit' and its effects on the Czech car maker. EPA

Once the butt of jokes, Czech-made Skoda cars have won over Brits, but the UK's exit from the European Union could deal a heavy blow to the brand and the entire economy of Czech Republic.

Britain is the fifth-largest export market for the country, an EU member of 10.6 million people heavily dependent on overseas shipments, especially cars.

The EU has given Britain until October 31 to organise an orderly departure, but a no-deal hard Brexit that would slap high tariffs on imports such as cars is still possible.

Controlled by Volkswagen since 1991, Skoda exports some 80,000 cars to Britain a year, almost 10 per cent of its annual output.

Skoda told AFP it was "worried and getting ready for all scenarios" and called for a "solution acceptable for all parties", but declined to elaborate.

Radek Spicar, vice president of the Czech Confederation of Industry, went further, warning that the company might suffer a heavy blow.

"A hard Brexit would mean 10 per cent import duties slapped on cars, and that would hurt," he said.

"It would stifle demand for cars. Companies like Skoda wouldn't collapse, but they would lose part of an important market," Mr Spicar added.

Despite the grim outlook, Skoda raised its first-quarter sales to Britain by 3.6 per cent against a year ago to 22,200 units, said company spokesman Zdenek Stepanek.

Mr Spicar pointed out Britain was also a "symbolic" market for the manufacturer, which has come a long way from being the butt of jokes to one of the most respected makes there.

"How do you double the value of a Skoda? Fill the tank with petrol," went a popular joke about Skoda's clunky models produced in the 1980s when Czechoslovakia – the predecessor of the Czech Republic and Slovakia – was still communist.

epa07496240 Models pose with a 1956 Skoda Spartak 440 at the 'Techno Classica' fair for classic and vintage cars in Essen, Germany, 10 April 2019. The world fair for classic and vintage cars takes place from 10 April to 14 April 2019. EPA/FRIEDEMANN VOGEL
A 1956 Skoda Spartak 440. The marque was considered a joke for years by bthe UK motoring public. EPA

"Do you know why Skoda has heated rear windows? So when you're pushing it home in the winter, your hands stay warm," was another.

But Britons gradually melted – Skoda's Fabia model was named car of the year by What Car? magazine in 2000, while the Skoda Yeti became the best car to own in a 2013 poll of 46,000 British drivers conducted by the Auto Express magazine.

"Nobody is ashamed of driving a Skoda now, Jeremy Clarkson praised it in Top Gear, it is driven by taxi drivers," said Mr Spicar.

"Britain is simply a symbolic, important market, and Brexit would be terribly unpleasant for the make."

A hard Brexit would "slash Czech exports to the UK by 20 per cent, Czech GDP growth by 1.1 points, and employment by 40,000 staff", analysts at the Ceska sporitelna bank, a Czech unit of Austria's Erste Bank, have warned.

Czech companies sell goods worth €8.2 billion (Dh34.06bn) to Britain a year, with car exports making up more than half of the total, according to Ceska.

Accounting for more than 20 per cent of Czech industrial output, the car industry "is the most threatened by Brexit because of its size within the economy", said David Marek, chief economist at Deloitte Czech Republic.

Three global car makers with Czech plants turned out more than 1.4 million cars in 2018, a new record, with Skoda making up over 60 per cent of that.

South Korea's Hyundai, and TPCA, a joint venture of Japan's Toyota and France's Peugeot-Citroen, also have Czech factories.

A thriving car sector has been a major contributor to economic growth since 2013, with 2.9 per cent expansion last year following 4.5 per cent in 2017.

Czech producers of electronics, nuclear plant components, sweets, photo equipment and others are also worried.

"We generate turnover of some €10m in Britain, which is about 4 per cent of our total turnover," said Tomas Kolar, chief executive of Linet, a producer of hospital beds and mattresses.

"A hard Brexit would be unpleasant but not critical," he added.

For Linet, just like for car makers and other companies, Brexit will most probably mean their products will have to get a fresh certificate for sales in the British market.

"This is a non-tariff trade barrier, independent regulation present in all non-EU countries. It may take time before we get the certificates," said Mr Kolar.

Stocking up is a way to avoid problems, but Linet could not do that as its products are tailor-made for each hospital or clinic.

Instead, it has stocked up on welded mattress parts from a British supplier.

"We didn't want to end up empty-handed, it would hit us globally because we sell mattresses worldwide," said Mr Kolar, who expects Britain to impose a 6.5 per cent duty on special mattresses made by Linet should a hard Brexit occur.

"It's tough. I still hope they will find some common sense," he said.

While the cheap and cheerful Skoda is still a British favourite, at the other end of the scale, Jaguar Land Rover is offering an easy way for car-less Londoners to impress with a cool set of wheels on the weekend.

InMotion Ventures, the car company’s venture capital fund, has started an app to request a flashy rental that will be delivered straight to the front door. Customers in the capital can book one of 50 Land Rover Discovery Sports, and the company hopes to add a wider variety of models in the future, according to Bloomberg.

The idea is to cater to a premium market that may “have a specific car in mind because they want to go to a wedding or a festival” said Sebastian Peck, managing director of InMotion Ventures. “This is designed around a new urban demographic that doesn’t see much financial and emotional incentive in car ownership.”

The Jaguar Land Rover Automotive Plc XE SV Project 8 vehicle is displayed during a reveal event in Los Angeles, California, U.S., on Tuesday, Nov. 28, 2017. During the Los Angeles Auto Show, Land Rover will show several new editions from its Special Vehicle Operations factory, including the Range Rover SVAutobiography and the 2018 Range Rover Sport SVR and plug-in hybrid. Photographer: Patrick T. Fallon/Bloomberg
The Jaguar XE. The company is targeting car-less travellers in London. Bloomberg

London has the lowest rate of car-ownership anywhere in England, with 41 per cent of the capital’s households owning neither a car nor a van in 2017, according to Department for Transport statistics. That compares with just 20 per cent for the rest of the country.

Home-delivered rentals via The Out app are adding to Jaguar's push into new services to get drivers behind the wheel of one of its cars. Last year the company joined peers like Volvo, Mercedes-Benz and Porsche in offering subscription services to motorists that do not want to commit to buying a vehicle.

The British car manufacturer has had a difficult start to the year and announced it would cut about 10 per cent of its worldwide workforce in January, after slumping sales in China, a Brexit-induced slowdown in the UK and flagging demand for diesel vehicles.

Updated: April 14, 2019 01:41 PM

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