THE most telling joke from the bad old days of Skoda ran like this: How do you double the value of a Skoda? Answer: by filling its tank with petrol.

Perhaps, with the price of fuel where it is today, that is no longer a joke. Certainly, the cars that come from the Czech manufacturer are now taken seriously and have become recognised as well-made, reliable and good value for money.

In today’s brand-conscious world, Skoda comes closest to a classless “people’s car”, the idea behind the original Volkswagen.

And it is Volkswagen, which is now an aspirational brand in its own right, that has wrought the revolution at Skoda.

The German giant first became involved in 1991 when the Czech and Slovak republics were one country and Skoda was state-owned.

Initially Volkswagen had only 30% of Skoda but incorporated it as its fourth brand, alongside VW, Audi and Seat. Its share-holding increased to 70% in 1995 and by 2000 Volkswagen had acquired full control.

The timing was fortuitous. Volkswagen was already well established at Skoda when rival manufacturers began eyeing low-cost production sites in newly democratic central and eastern Europe.

When Volkswagen arrived, Skoda had only one model and its factory at Mlada Boleslav produced 170,000 cars a year, most of them sold in the eastern bloc.

Gradually, Volkswagen components and processes were introduced and Skodas became restyled VWs with a different badge – and a lower price.

Last year Skoda sold a record 630,000 vehicles worldwide and now it is aiming for a million. At its present rate of growth – more than 10% a year for the last three years – it will exceed 1m cars a year by 2012.

Reinhard Jung, Volkswagen’s production and logistics expert who was appointed chief executive of Skoda last October, said maintaining growth depended on widening the product range and increasing Skoda’s presence in new markets. Introducing his latest model, the Superb, a rival for the Ford Mondeo and forthcoming Vauxhall Insignia, Jung said: “A full range is key if a manufacturer is to retain existing customers and attract new ones. The Superb is vital because it allows Skoda to grow by taking our customers with us. It shows we can offer more than just small cars.”

The Superb also shows how far Skoda has come from rebadging VWs. For the second generation of cars under German management, Skoda was allowed more independence from Volkswagen headquarters at Wolfsburg. It built its own research- and-development centre, which will soon number 1,500 engineers, and had the freedom to mix and match component modules from the Volkswagen empire and develop unique Skoda features.

The result was a clearer separation of the latest Octavia and Fabia models from the VW Golf and Polo, on which they are based. Skoda was able to go its own way with the quirky Roomster estate car and the Superb, which, using mainly Golf components, manages to provide more interior space than either the VW Passat or Audi A6. It also has a novel twin-door system that converts it from a conventional saloon to a hatchback at the touch of a button.

Jung is realistic about Skoda’s place in the auto hierarchy: “We try to provide interesting and useful features for the consumer. It is not our job to be a leader of technology, like Audi. The price-value relationship is always an important point for Skoda.” Buyers seem to appreciate that. In the UK, where it sold 39,900 cars last year, Skoda regularly scores high approval ratings. It came second, behind Lexus, in the 2008 JD Power customer satisfaction survey.

So, while it is expanding at the top end of the market with the Superb and Yeti crossover 4x4, to be launched next year, Skoda has also made sure it will have a version of Volkswagen’s forthcoming low-cost small car.

The big three areas for growth are India, Russia and China. India is particularly interesting. Volkswagen nominated Skoda as the most suitable brand for India eight years ago and, because it was unknown there, the car carried none of the baggage of its shoddy communist-era reputation. An assembly plant was built and the Octavia was soon regarded as a premium saloon.

There are hopes this can be replicated in China, where Skoda began selling last year - although its presence there was preceded by Volkswagen and Audi. In Russia Skoda’s cars were imported and therefore disproportionately expensive; however, an assembly plant shared with Volkswagen was set up last year and sales have already doubled.

Unlike most of its competitors, Skoda still sees opportunities for expansion in Europe, partly because it will have a wider range but also because of an upgrade in its products.

It expects the Superb to sell twice the 20,000-a-year its previous model achieved. That was a mildly-restyled version of an older VW Passat but the new one has a character of its own and can claim to be fully competitive with the larger saloons of other volume manufacturers. To maximise its chances in this closely-fought sector, Skoda will also introduce an estate version.

Skoda has now spread to 100 countries and these days decides for itself where to start selling. Australia is its newest market.

Volkswagen, however, has to approve the move into new territories and often provides the back-office functions.

Skoda is the Czech Republic’s biggest business in terms of sales and exports. Its revenue in 2007 was £7 billion - up 9% on the previous year - with an operating profit of £630m, which wasa 35.5% improvement on 2006.

Volkswagen made a good call when it moved into Skoda after Czechoslovakia’s 1989 Velvet Revolution ended communist rule. Renault had also bid - it wanted to build its cheapest car, the Twingo, there - but the Czech government preferred Volkswagen’s pledge to develop a wider range of models. Now, 17 years later, history is repeating itself. After annexing the Dacia car business in Romania, Renault is to take a 25% share and management control of AvtoVaz, the Russian maker of Lada cars.

The Czech Republic is proud of its engineering heritage. Before the second world war Skoda and its predecessor, Laurin & Klement, were highly respected car makers. Cost constraints, poor materials and process control saw its reputation dive in the communist era and for a while after the takeover it was uncertain whether Volkswagen was serious about reviving the brand.

It had looked as if Skoda’s three plants in the Czech Republic would make VWs, taking advantage of labour rates a quarter of those in Germany.

Now the tables have turned, however. Skoda is at full capacity and Volkswagen helps to meet growing demand for its best-selling model by building Octavias in the VW factory across the border at Bratislava, in Slovakia.

Skoda is on a roll - and that’s no joke.

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