March 5 (Bloomberg) -- Volkswagen AG, Europe’s largest automaker, is weighing options for its Spanish division Seat to begin producing cars in China as part of a broader effort to restore earnings at the company’s only unprofitable unit.
Seat is examining opportunities for local assembly in the world’s largest car market, Juergen Stackmann, the head of the brand, said in an interview at the Geneva International Motor Show. A time frame for a decision isn’t set.
“It’s clear that a purely export-driven strategy won’t work” to establish a profitable business for Seat in China, Stackmann said. The division started selling imported cars in the country two years ago, opening dealerships in large cities including Beijing and Shanghai. At the same time, “establishing local production in China would of course be a Herculean task for a brand like ours.”
Expanding sales across Europe remains vital for Seat’s turnaround efforts to improve utilization of its factory in Martorell outside Barcelona. Seat has narrowed annual losses since 2009, and its global sales rose 11 percent to 355,000 cars in 2013, driven by demand in Germany and the U.K.
VW, based in Wolfsburg, Germany, is scheduled to publish Seat’s earnings and revenue figures for last year on March 13.
Stackmann, who succeeded James Muir as head of Seat in May, is betting on demand for the revamped compact Leon vehicle line to improve sales further in 2014 and establish the models as the brand’s second pillar, in addition to the smaller Ibiza. Seat added a Leon station wagon variant, dubbed the ST, the last three months of 2013, and it will introduce a sporty Cupra version in the second quarter of this year.
“We’re optimistic for this year, especially because our home market in Spain is showing growth again,” Stackmann said.
Car sales in Europe have gained for at least five consecutive months as the improving economy, which has expanded for three straight quarters after a record-long recession, spurs consumers to purchase new vehicles. The European Commission raised its 2014 growth forecast for the 18-nation euro area in late February to 1.2 percent.
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