March 26 (Bloomberg) -- Volkswagen AG, Europe’s largest automaker, will add a compact sport-utility vehicle to the Seat division’s lineup in 2016 to win new customers and accelerate a turnaround at the German parent’s only unprofitable unit.
The new model marks Seat’s entry into a growing market segment that represents almost 1 million vehicles annually in Europe and has increased by more than 40 percent over the last five years, the Martorell, Spain-based division said today in a statement. The SUV will be designed and engineered in Spain.
Expanding sales across Europe and abroad is vital to restore the division’s earnings. Seat, which hasn’t been profitable since 2007, narrowed its loss to 152 million euros ($210 million) in 2013 from 156 million euros a year earlier as deliveries rose 11 percent to 355,000 cars, driven by demand in Germany and the U.K.
“It’s part of Volkswagen’s business model to make as many vehicles as possible on one platform,” said Frank Schwope, a Hanover, Germany-based analyst at NordLB. “It seems natural that VW is adding a Seat model to give the brand the opportunity to sell more vehicles and to get profitable.”
Volkswagen rose as much as 2 percent and was trading up 1.6 percent at 183.75 euros as of 1:09 p.m. in Frankfurt. The stock has gained 17 percent in the past 12 months, valuing the carmaker at 83.9 billion euros.
VW plans to build the SUV at a plant run by the German company’s Skoda division in the Czech Republic, where labor costs are lower, a person familiar with the matter said. The most likely location is the factory where Skoda produces the Yeti SUV, said the person, who asked not to be identified because no final decision has been made. Officials at Wolfsburg-based VW declined to comment.
“The SUV is an important pillar in the future corporate strategy and is a major step forward on the road to reaching sustainable profitability for the company,” division Chief Executive Officer Juergen Stackmann said in the statement.
Seat is weighing options to begin producing cars in China, the world’s largest car market, as the Spanish manufacturer expands outside Europe, Stackmann said in a March 5 interview. A time frame for a decision isn’t set.
The unit started selling imported cars in China two years ago, opening dealerships in large cities including Beijing and Shanghai. Seat is also planning to add to its presence in countries including Mexico, Turkey and Algeria to reduce dependence on Europe, its main sales region.
Volkswagen overtook General Motors Co. in deliveries last year to become the world’s second-biggest automaker. The company, which also owns luxury-vehicle producers Audi and Porsche, is targeting taking the top industry spot from Toyota Motor Corp. by 2018.
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 nameplate’s second pillar, in addition to the smaller Ibiza. Seat added a Leon station wagon variant, dubbed the ST, at the end of 2013, and it will introduce a sporty Cupra version in the second quarter of this year.
Seat’s lineup also includes the Toledo sedan, the Altea compact van and the larger Alhambra van.
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