Skoda is all set to pull the plug on the Fabia and will stop selling its only hatchback in the Indian market. However, Skoda will finish assembling Fabia kits before stopping production and hence the Fabia will continue to be sold, possibly till the end of this year, until stocks are exhausted.

Skoda’s decision to withdraw the hatchback from the market was prompted by the huge losses the company has been incurring on the Fabia. Successive price cuts over the years to prop up demand has seen this car shedding almost 40 percent of its price tag since its launch in 2008, which badly squeezed margins. The Fabia’s relatively low level of local content made it very expensive to produce and this problem was compounded by the Indian Rupee depreciation of 36 percent since 2008 which pushed up costs even higher. According to industry sources, Skoda was losing as much as Rs 1.5 lakh per car and hence the company was deliberately refraining from aggressively marketing the Fabia which sold a meagre 3,343 units in the 2012-2013 fiscal year. Last month Skoda sold a paltry 115 units. Earlier this year, Honda withdrew its premium hatchback the Jazz, for similar reasons as the car was just too expensive to produce.

Skoda is unlikely to re-launch the Fabia before 2015 and it's not clear if the successor will be a modified version of the existing car (SK 250) or all the all-new Fabia (SK 260) that’s due for an international launch next year. However, given the low demand for the Fabia, any option to bring it back to Indian shores has been put on hold for the moment.

This strategic decision to discontinue the loss-making Fabia is intended to help Skoda India focus its resources and efforts on new product launches and customer satisfaction which has been the Achilles' Heel of the company. The company is betting big on the new Octavia which Skoda hopes will become the segment leader after its launch this August. “We can re-deploy our resources from the unprofitable Fabia towards brand building for our other products and dealer network expansion” said a company official.