VW-Skoda Deal Tests Privatization CZECHOSLOVAKIA

Article excerpt

AN outline of the future of foreign investment and its role in privatization of Czech industry is slowly emerging, with Volkswagen AG's purchase into Czechoslovakia's state automaker, Skoda, as a much-watched test case.

By accepting the offer of the robust German firm over that of ailing state-owned Renault-Volvo, the Czechoslovak government demonstrated that economic, not political considerations would prevail, despite deep-seated domestic fears of German economic colonization.

As Czech Premier Petr Pithart explained, "In this country matters were solved politically for too long. We cannot afford to do this; we had to opt for a clearly more economically advantageous offer."

Seen in this light, there was no contest - Volkswagen's commitment to a 9.5 billion deutsche-mark (US$6.35 billion) investment over 10 years was two-and-a-half times the rival bid of Renault-Volvo. The money is unquestionably important, since Skoda boasts a 1.4 billion crown (US$50 million) debt - the highest in Czech industry - and its inability to pay suppliers has threatened its very existence.

But the government's choice of Volkswagen was not due solely to the dazzle of the deutsche mark. It was also influenced by social factors. The Germans' comprehensive social and employment program calmed fears of the impact of large-scale layoffs and rallied Skoda workers to support their bid. They threatened to strike if Renault-Volvo's less reassuring offer won.

The VW offer also comforts Czech pride. While Renault-Volvo wanted to harness Skoda's skilled, cheap labor to assembly of their own models, Volkswagen pledged to preserve and develop the Skoda brand name. Annual production of Skoda's boxy Favorit, a Czechoslovak status symbol, will be more than doubled to 400,000 over the next six years. Cars will be sold from Skoda's own dealerships through VW's vast European distribution network. …