Three years ago the most powerful Skoda packed a scant 75 hp. Today's top Octavia has 125 hp, with 150 hp in the pipeline, and the upward trend doesn't end there. Skoda, like parent Volkswagen AG, plans a new V-8. A 250-hp Skoda, no less.

The Czech carmaker - by one interpretation, the third oldest in the world behind Mercedes-Benz and Peugeot - is now Europe's fastest-growing volume marque. Sales rose by 29% in 1997 and are on track to increase by 22% this year to more than 410,000. Worldwide sales are already up 18% for the first four months of the year. Clearly, Skoda is doing something right.

"Skoda is the value-for-money brand," says Wilfred Bockelmann, head of development. "It's not good enough only to be the price leader, like the Koreans. We can't sell cheap cars; we have to offer a good buy and convince the customers of the quality of a Skoda."

VW's long-term strategy calls for Skoda to target AB Volvo and Rover.

Says Karl Busching, who heads production: "The Skoda is a rational car. You get a lot of car for the money. It's not a luxury car, but Skoda is coming up from the entry-level Felicia. We are working on a better image, our quality is improving quickly, and we want our cars to be compared with Rover and Volvo, the old image of Volvo."

The bigger Octavia, built atop the same platform as the Golf, offers more room, many of the same gasoline and diesel engines, yet sells for less, engine for engine. It has been a sales hit all over Europe. Skoda originally expected to produce up to 90,000 Octavias a year in a new greenfield plant, but will build 110,000 in '98 and now is looking at increasing production to 140,000, given the anticipated demand for the estate version that is expected to take 50% of sales.

Skoda, with a determined VW Chairman Ferdinand Piech "loading us up with projects," wants to spread its range beyond even the new Octavia.

"If you really want to be international, you need to stand on more than two legs," says Mr. Bockelmann. "A bigger car fits perfectly into our way of thinking, our

tradition and history. We must give customers time to follow us. We can't move up-market too quickly in size or price. The air is rougher if you go up. "

But the new car won't be a VW Passat-based model. Mr. Bockelmann says the space-efficient Octavia wagon offers almost as much room as a Passat wagon, although he admits that it would be even better on a stretched Golf wheelbase.

Development of the Felicia replacement, built on VW's AO (Polo) platform but with significant suspension tweaks and possibly a unique wheelbase, is almost complete. The new Felicia is due out late in 1999.

What makes a Skoda different from other VW Group marques?

"It's not only taking parts from a platform warehouse," explains Mr. Bockelmann. "We only take the engines we need, the final adaptation is our responsibility.

"The same applies to the suspension settings. We don't have GTi customers, so our settings are designed for safe, normal driving and are not as hard as those for an Audi or a GTi. You must also look at our rough roads. The bump stops are longer and softer so that they work like a variable-ratio spring."

Since taking control of Skoda in 1990, VW has invested more than $700 million in new plants and equipment and plans to spend another $350 million over the next two years. Skeptical Czech workers no longer doubt VW's commitment to the now-profitable Skoda, which is the Czech Republic's biggest exporter and largest company.

Due to wage rates that are still around one-third of those in Germany, even the new Octavia plant is far less automated than you might expect. The body shop - working three shifts - employs about 1,000 people and is 5% automated with robots, compared to 30% in similar VW plants in Germany.

"It's just not necessary here," says Mr. Busching. Czech employees do worry about how competitive the Skoda plants will be when Skoda assembly line workers are paid comparable wages, probably in a decade. That's in the future, and VW knows it has a potential jewel in Skoda, one that's worth protecting.

Forget Skoda jokes; they are as pathetically out of date as the Octavia is contemporary.