[bantic]

Despite continued sales to the Skoda faithful, by the early 1980s export volumes were dwindling and the usually slow-moving state structure took decisive action, the Communist Party central committee approving a programme for development of an all-new front-engined car. Work began in 1983 on a front-wheel-drive five-door, with styling by Nucio Bertone. The Italian designer had to accept a few limitations: the tailgates for the hatchback and the estate had to be identical, as there was only the money for one set of moulds and pressings, and there was no choice of headlamps, as one particular supplier had to be used. Development had to be rapid to meet the Party deadline, and the new Favorit - reviving another name from Skoda's past - was presented at the 1987 motor show in Brno. Over 21,000 examples were made at Mlada Boleslav in 1988, with production upped to 80,000 the following year; the Favorit received a positive reception from the press, especially credited for its value for money; its handling was up to scratch even if its overall finish and refinement was a little behind the class average. It became Skoda's best-seller, with well over a million produced.

With the changes to the regulations for rallying, and the banning of rear-engined cars from international competition, the 120/130/136-based Group B rally cars had to be replaced. The basic 1300cc engine had to remain, but the new Favorit rally car won its class in the FIA championships in 1994. Team director Pavel Janeba told Rally Sport: "These were difficult days. Motorsport in Skoda was in decline. My first job was to build up again the old philosophy that whatever was the car in production, people had to race in Skoda cars! Therefore we used the Favorit in very much more standard versions than had been used in sport cars in the recent years. There was also a foreign currency crisis at that time and we needed to be able to buy in foreign expertise, but step by step things started to go in a right direction again. We restored a better contact between competition and production as well… this was at a time when the management was still hesitant about the benefit of motor sport. This title was the proof they needed. The standard of the competition may not have been so high as nowadays, but on the other hand we won with a 1300cc engine in a two-litre category."

The early 1990s also brought about a major change for Czechoslovakia; the Velvet Revolution of 1989 saw the overthrowing of communism. The large Western manufacturers saw the opportunity to expand into new territories, and benefit from working in regions with lower labour costs, and Skoda was looking for an investor. Deals were discussed with General Motors, Renault and BMW, but a contract was eventually signed in 1991 with Volkswagen.