Skoda teaches the world to make cars

MICHAEL ROGUZ is 19 and comes from a small Polish village on the border with Ukraine. Educated, articulate and fluent in English, he could have been a translator or entered one of the professions. Instead he has chosen to take part in a unique experiment in car production at the Skoda Auto plant at Mlada Boleslav, 60 kilometres north-east of Prague.

The fruits of that experiment will appear in Britain next week when the Skoda Octavia goes on sale. It is the most important Skoda car launch since the Velvet Revolution swept communism away and the Czech Republic's best-known export (after Budweiser beer) was taken under the wing of Germany's Volkswagen. It is also the product which Skoda hopes will change its image once and for all as the joke brand of the car market.

If the car is as advanced as the method being used to manufacture it, then Skoda has reason to be quietly confident. Michael, one of 3,000 "guest" workers at the plant, is paid 16,000 crowns (pounds 300) a month for working an eight-hour shift with a 30-minute break. Although he only arrived at Mlada Boleslav two weeks ago, he says he is enjoying life on the assembly line.

VW, which took a big gamble when it paid DM1.3bn for Skoda in 1991, would probably appreciate his enthusiasm but dispute his assessment. For the Octavia line is anything but typical and, while it may look simple, it is a showcase for some of the most advanced techniques the car industry has ever witnessed.

Unlike a conventional production line, where components are fitted to the shell of the car as it moves along, the Octavia plant has been designed using the "fractal" assembly concept. This means that large parts of the car - such as the dashboard and the seat assembly and the rear axle - are pre-assembled as one unit and then bolted on as one.

Nearly a half of the workforce on the Octavia line are not employed by Skoda at all but work for component suppliers. The line itself is only about a third of the length of that in the sister plant next door which makes the Skoda Felicia.

The result is that inventories are kept to a bare minimum. This is one step beyond "just-in-time" manufacturing. The rest of the automotive world is watching the experiment with interest. Mazda of Japan is said to be planning a similar plant while Mercedes intends to use the technique at its Swatch car plant.

Skoda is coy about how well the experiment is progressing. Although the Octavia went into production in late 1996, output is still in the build-up phase. The plan is to raise production from 90,000 to 140,000.

Frank Farsky, director of communications, says: "We had to have a lot of discussions with the unions because they were afraid it would take jobs away from them. Some people were against it because they did not think it would work. But the experiment is succeeding. We are producing the volume and the quality while cutting down on lead times and costs". The proof of the pudding is in Skoda's results. Last year it produced after-tax profits of 1.9bn crowns on sales of 90bn crowns - the first profit since VW took over - and this year the plan is to pay the first ever dividend to its German owners.

But it is not just down to advanced production techniques. Skoda still has the lowest labour costs of virtually any car maker in Europe. The pounds 300 a month that Skoda workers earn is a third more than the national average but it is still just one-eighth of the wages in a German car plant.

"Our lower labour costs are an advantage but they are not to last forever," says Mr Farsky. "When we took over we assumed it would give us a edge for 10 years. It looks like it will last longer than that. In terms of manhours per car we are not as efficient as we might be but in terms of cost per employee per car we are ahead of other European manufacturers and even the Japanese."

VW's priorities when it took over Skoda were to keep the name, maintain the workforce at its current size (22,000 people), raise capacity and add another model.

It has achieved all that but some observers question how much is left of Skoda that is identifiably Czech. The Octavia was designed by a Belgian brought in from VW's Audi unit, 60 per cent of its platform (power train, gearbox, engine, drive shaft, suspension, floorpan) is the same as that on the VW Golf and Audi A3 and many of the key components come from VW.

Dirk Van Braekel, who arrived at Mlada Boleslav as head of design in January 1994 disputes that Skoda has become little more than a "badge" company. "Everything you see, hear and feel here is 100 per cent Skoda," he says. To prove the argument he points to the way he designed the Octavia. "What we have tried to do is create a bridge to the past, before the bad days of communist control, and draw on the strengths from Skoda's long tradition. So for instance the grille is inspired by pre-war Skodas and the silhouette is based on the Skoda coupes from the 1950s and 1960s."

VW intends to invest a further DM2.4bn in the next four years on top of the DM2.1bn it has already sunk in the business with the aim of raising production to 500,000 a year - triple the level in 1990. There are also plans for a third model, a large car in the Audi A6 bracket.

To pull it off will depend on persuading the Czechs that a Skoda remains a Skoda (the marque still accounts for 57 per cent of the domestic market) while convincing west European buyers that beneath the Skoda skin lies a body of pure German technical sophistication. In Britain, for instance, Skoda has set itself a target of more than doubling sales from 16,500 last year to 37,500 by the millennium.

Competitive pricing will help. The Octavia will start at pounds 11,500 - that is pounds 3,000 less than the Ford Mondeo and Vauxhall Vectra But Skoda will probably have to get there with little help from the all-important fleet market.