June 11, 2018 / 8:32 PM / 10 days ago

VW's Skoda says might outsource production to meet demand

BERLIN (Reuters) - Volkswagen’s (VOWG_p.DE) Czech brand Skoda said on Monday it might outsource some production to a contract manufacturer as the division looks to respond to booming demand.

A Skoda logo is pictured during the Volkswagen Group's annual general meeting in Berlin, Germany, May 3, 2018. REUTERS/Axel Schmidt

Already grappling with stretched capacity at its Czech plants, demand for its new sport-utility vehicles could lead production at Skoda to surge to 2 million cars by about 2025 from 1.2 million currently, the automaker has said.

VW’s labour boss Bernd Osterloh last week told Reuters that shifting some production to Germany by 2019 will not solve bottlenecks at Skoda, which has passed Audi (NSUG.DE) to become the second-most profitable unit at VW group after sports-car brand Porsche.

“There is a wide range of options to cover order peaks,” Skoda said in an emailed response to a question from Reuters, adding that taking advantage of unused capacity within the multi-brand VW group will not do the trick.

“For that reason we keep looking into alternatives that also include possible contract manufacturing,” Skoda said. “Demand is exceeding our production capacities also in 2018.”

Major carmakers including Germany’s big three BMW (BMWG.DE), Daimler (DAIGn.DE) and VW routinely use contract manufacturers such as Magna (MG.TO) or Finland’s Valmet Automotive to outsource production, earning them greater flexibility while saving investments in their own facilities and resources.

Valmet is hiring up to 1,000 new staff this year to help build the Mercedes GLC sport-utility vehicle and the new A-Class compact.

Osterloh said a decision on how to boost Skoda’s output will likely be reached by November when VW’s supervisory board, of which he is a key member, is due to ratify the German group’s rolling budget on capacity, technology and equipment.

Reporting by Andreas Cremer; Editing by Matthew Mpoke Bigg

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