BARCELONA -- Spanish automaker Seat will lead VW Group's expansion in North Africa as part of internationalization plans that may also include building cars in Mexico.
Seat is seeking to expand its business in North Africa and Latin America in the next decade to stabilize earnings by reducing its reliance on Europe.
Seat will "take the leadership role" in VW Group's new Algerian plant, de Meo said at the brand's annual earnings press conference here on Thursday.
VW Group has formed a joint venture with Algerian sales partner SOVAC to assemble the Ibiza, VW Golf, VW Caddy and Skoda Octavia in Algeria.
Final assembly of the Ibiza subcompact for North Africa will start at the Algerian factory in the second half, de Meo said. The car will be built from kits supplied from Seat's plant in Martorell, Spain.
While increasing sales in markets such as Italy and France is still a priority, "it would be healthy for us to sell about 30 percent of our cars outside Europe in next five to 10 years," de Meo said.
Making Seat vehicles in VW Group production facilities in Mexico could facilitate access to more Central and South American markets, he said. Seat sold 2,700 cars in Mexico in January, up 16.3 percent.
Seat was founded in 1950 as an assembler of Fiat models and bought by Volkswagen in 1986 but it has long been a weak link for the German automaker.
VW has said it will re-evaluate its portfolio in the aftermath of the diesel-cheating scandal. That puts pressure on Seat to further improve its performance. The brand sells more than 90 percent of its vehicles in its home region.
Competition in Europe's saturated car market is set to intensify amid PSA Group's plans to acquire General Motors’ Opel to create Europe's second-largest carmaker after VW Group.
After almost a decade of losses, the Spanish brand posted an operating profit of 153 million euros last year, boosted by the new Ateca, its first SUV. Still, profitability is weak, with an operating margin of 1.7 percent of revenue, compared with 6.7 percent for the group and 8.7 percent for VW Group's Czech-based Skoda brand.
In an effort to boost this performance, the company will roll out a larger SUV in 2018. Based on the VW Tiguan and produced in Wolfsburg, Germany, the Ateca's "large brother" will become the Spanish brand's new flagship.
While Seat's main models will remain affordable hatchbacks such as the Leon and Ibiza, "large SUVs represent one of the fastest-growing markets," de Meo said. "We are confident about the potential of our new car." The new model would become the third SUV for Seat after the Ateca and the new compact Aron, due this year.
The expansion has paid off with the brand's deliveries up 14 percent through the first two months of 2017, according to data released by Volkswagen last week.
"We are tailoring our models to market demand, moving from traditional body styles such as people carriers and sedans to SUVs and crossovers, with a bigger potential to demand premium prices," said de Meo, who worked at Fiat and VW's Audi before joining Seat in 2015. The goal is to increase the unit's operating margin to as high as 4.5 percent in the coming years, he said.
Bloomberg contributed to this report