Shanghai Auto Show 2011: VW Confirms Chinese SEAT Launch at Shanghai Auto Show Next Month

Volkswagen (VW) will launch the SEAT brand in China at the Shanghai Auto Show next month. Andreas Hoffbauer, spokesperson for the VW Group in China confirmed the news in an email to IHS Automotive, stating: "Yes SEAT will join the Chinese market." Earlier today (11 March), Dow Jones International News reported that Francisco Javier Garcia Sanz, VW's purchasing chief, said that the SEAT brand would be launched in China but did not indicate when. At the same time, VW chief financial officer (CFO) Hans Dieter Poetsch has also said that SEAT is expected to return to profit in 2013, helped by the launch of new models.

Outlook and Implications

Finally VW has confirmed that the SEAT brand will be launched in China after several years of rumours to this effect (see China: 17 March 2010: China: VW Reportedly Planning Two New Facilities in China). In January 2010, Reuters reported that VW together with joint venture (JV) partner First Automobile Works (FAW) will use a new plant in southern China to launch local production of SEAT models, although the Spanish brand denied this at the time. However the new plant in Foshan in Guangdong province is still under construction and is expected to begin production in mid-2013 with capacity to produce 300,000 units, according to a VW press release sent to IHS Automotive. As VW launched the Skoda brand with its other JV partner Shanghai Automotive Industry Corporation (SAIC), FAW would be the most likely candidate to gain SEAT as an additional mainstream brand at the new site from 2013. However, it would seem unlikely that the entire new plant will be dedicated to the SEAT brand as VW needs capacity for existing brands such as Audi. In China, it generally takes between three and five years for brands to ramp up sales of 100,000 units, and this would indicate just a portion of capacity would be used at Foshan.

In the meantime, VW will probably introduce imported SEAT models to the Chinese market to build up brand awareness before launching local production. This is likely to help the brand's capacity utilisation slightly, as it has fallen as a result of the lack of success that it has had in recent years. The brand's sales have fallen during the past decade from over 500,000 units to 332,000 units, with further declines expected this year. It is not helping that it is mainly dependent on demand stemming from the Spanish market which has been affected severely by the economic downturn, and sales now 40% down from pre-crisis levels. This decline has resulted in the brand suffering operating losses over several years, although this has been cut from EUR339 million (USD469.5 million) in 2009 to EUR311 million last year. However, having seen a EUR1-billion operating profit generated by its VW JVs in China during 2010, it is no doubt eyeing the opportunities that could present themselves in the country. The move comes as the brand seems to have been offered one last roll of the dice by VW, with a five-year ultimatum having been given to its chief executive officer (CEO) James Muir last year (see Spain: 14 May 2010: VW Gives SEAT Five-Year Breakeven Ultimatum). The question remains whether an entry into China will be one of the keys to its future success. While growth is expected to continue to be strong, it will no doubt encounter some of the problems that it has seen in Europe in how will it be marketed to potential consumers. It does not help that as well as VW, Audi and Skoda have got there before it, meaning that it will have to establish itself in its own niche so as not to cannibalise customers. We will no doubt have to await the formal announcement that will take place at the event to have a clear indication as to its plans for the region.