SEAT Seeking Reversal of Fortune in Russia

MADRID – Things have not gone well for SEAT, Volkswagen’s Spanish subsidiary, but that could be about to change as the auto maker ventures into Russia.

With losses in nine of the past 10 years, SEAT is dragging down the otherwise successful German automotive group. But while rumors suggest Volkswagen may be considering divesting the Spanish brand, top management in Wolfsburg denies it has such a move in mind.

Indeed, SEAT’s first-half global sales reportedly rose 16%, compared with year-ago, to 218,000 units, despite the decline in Spain.

With its home country struggling and consumer confidence falling to an all-time low, SEAT last year sought to offset its losses by expanding into China, where Volkswagen Group China reported a record 2.26 million vehicle sales in 2011, up 17.7% from prior-year.

“China, Russia and Mexico are our key global markets, and all of them will contribute to increase our exportations and sales during the next years,” Paul Sevin, SEAT’s vice president-sales in Guangzhou, said at the time.

SEAT President James Muir underlined that a sales-and-service network was being established in the country and said 12 dealers already had signed distribution contracts in order to launch sales in April 2012 at the Beijing auto show.

But SEAT arrived just as the Chinese juggernaut was losing momentum and car sales were weakening. From the original dealer group, plus another three Muir expected to sign, SEAT ended up with just 10 distributors and ramp-up has been slower than planned.

Sevin admits the auto maker needs to analyze the reasons for its failure in China, so far. “Despite the import tariffs imposed by the Chinese government (on) foreign cars, our vehicles have a competitive price, and the customer traffic in our show rooms is similar to other VW Group brands,” he says.

SEAT now is looking to the promising Russian market, where new-vehicle sales climbed to an August-record 258,761 units, pushing the 8-month total 14% higher to 1.93 million.

Volkswagen Group ranked second in August among foreign brands, up 43% to 26,354 units and rose 53% to 206,357 in the year’s first six months.

But although SEAT initially set up shop in the country a year ago, the contract with its selected importer was canceled, and VW’s Russian subsidiary now is handling logistics.

The auto maker is targeting 4,000 car sales in the first year, reaching 20,000 in 2015. To achieve those figures, SEAT has signed up 12 more dealers and plans to have a total of 25 onboard by year’s end.

The cities of Moscow, St. Petersburg, Yekaterinburg, Nizhni Novgorod, Kazan and Rostov are covered, and an expansion to other markets nearer to Western Europe also is planned.

SEAT was at the recent Moscow auto show, where it showed its Altea, Ibiza and Alhambra ranges. Roman Cumin, general manager of SEAT Russia, suggested to Europa Press, a Spanish news agency, that if sales targets for 2015 are reached, the auto maker would consider assembling vehicles locally.

“We could assemble our (best-selling) models in Kaluga,” he told the news agency, referring to VW’s plant southeast of Moscow. “For example, the new Toledo, which will be produced next autumn in Mlada Boleslav (Czech Republic).”

Kaluga, with a production capacity of 225,000 vehicles annually, currently builds the Skoda Octavia and Fabia and VW Tiguan and Polo.