Czechoslovak state-owned carmaker Skoda is to go into partnership with Germany's Volkswagen rather than Renault of France, Czech regional premier Petr Pithart announced Sunday.
Volkswagen's $5 billion bid for a stake in Skoda was expected to win out over a $2.6 billion offer from Renault and its Swedish partner, Volvo.
Skoda is considered one of the best auto manufacturers in Eastern Europe. It had a manufacturing tradition predating communism and used its own designs instead of Western retreads. Its cars have a relatively good reputation for reliability.
"Skoda is worth fighting for. It's had more success in Western Europe than other Eastern manufacturers," said Suzanne Thackray, a consultant at Britain's independent Motor Industry Research Unit.
Annual sales of cars in Eastern Europe soon could surpass 5 million, and 10 million in another decade, she said.
The final decision in favor of Volkswagen, after months of evaluation and negotiation, was made by the Czech regional government at a special session Sunday, Pithart said.
"The Czech government, on the recommendation of its economic council, decided to accept foreign capital in Skoda Mlada Boleslav and chose the option of collaboration with Volkswagen," Pithart told reporters.
He did not say whether Skoda management had opted for Volkswagen in its recommendation to the Czech government, which is the legal owner of the nationalized firm and therefore had the final say.
Pithart said Volkswagen, which was always the front-runner in the race for Skoda, offered better financial conditions than Renault and a more comprehensive social package. He gave no details.
Volkswagen's production intentions, technology and investments were superior to Renault's and the German firm was more concerned with employment and social conditions, Pithart said.
"We were also concerned about the will to respect the future of the Skoda" logo, he said. "But above all we considered financial implications and they (Volkswagen) offered us export possibilities."
Volkswagen's offer has not been fully publicized but it promised to help to expand production of Skoda's popular Favorit model.
The Czechoslovak firm, which is to be transformed soon into a joint stock company, sought a foreign partner initially to supply engines for its own models and help to modernize its main works at Mlada Boleslav east of Prague.
Volkswagen would have a stake in Skoda of between 25 and 33 percent but it could increase in the future, Pithart said.
Renault and Volvo had offered to continue production of the Favorit while manufacturing the Renault R19 Chamade sedan at Mlada Boleslav and developing a joint new model with Skoda.
But unions representing the 15,000 Skoda workers came out strongly in favor of Volkswagen, saying its offer gave them greater job security and was more comprehensive.
An initial list of 24 candidates among European, American or Japanese auto giants interested in joining forces with Skoda was whittled down to a final two earlier this year.