Seat's de Meo wants to build on Spanish brand's strengths

Seat CEO Luca de Meo needed just 18 months to turn the chronic money-losing Spanish brand into a profit maker for parent Volkswagen Group. He wants to make achieving positive financial results a habit at Seat. The Italian executive, who has also held top jobs at Fiat and Audi, discussed Seat's strengths and weaknesses and outlined its future role within the VW Group with Automotive News Europe Associate Publisher and Editor Luca Ciferri.

Is Seat in position to sell 500,000 cars this year?

Last year we sold 408,700 vehicles in what was our fourth consecutive year of growth. My preference is to consistently grow by 8 percent to 9 percent a year because anything above that rate puts enormous pressure on your factories, suppliers and dealers. Therefore, I don't think 500,000 units are achievable this year. To me, it is much more important that we started 2017 with orders covering two months of sales. That allowed us to properly tailor our production. In the past, we operated with orders for just one month, which resulted in an unhealthy channel mix.

What is Seat's operating margin target?

The first goal was to make money, which we finally did last year. Long term, a 1.5 percent to 4.5 percent operating margin range is realistic given the segments and the markets where we operate.

Isn't that a bit low when PSA and Renault had margins of more than 6 percent and your Czech sister brand's margin was nearly 9 percent?

The French automakers had great results, but I think they are at peak cycle. They also disproportionately benefited from strong sales of SUV/crossovers in their home market. And while Seat and Skoda are both part of the VW Group, and there is no denying that Skoda's 2016 performance was remarkable, the brands are very different. Seat is mainly present in the A- and B-segments [minicars and subcompacts], while Skoda's strengths are in the C- and D-segments [compacts and midsize cars]. This has a clear effect on its margins.

Does that mean Seat cannot compete with Skoda?

Skoda began to internationalize when Seat was still struggling to recover financially. In addition, I think -- and the VW Group board agrees -- that it would be wrong for all brands to compete on the same field. Our strengths are that we have the youngest buyers in Europe, a high conquest rate, as well as a longtime presence in both entry segments and southern Europe. We must play to these strengths to better differentiate Seat within the VW Group so we can become a gateway to other brands in the group.

What is the average age of Seat's customers in Europe?

It is about 43 years old. That is eight to 10 years younger than other brands. When I came here, I was told Seat had a problem, which was the young age of its buyers. My response was: 'Guys, I have spent my entire career working on PowerPoint presentations to show how we could rejuvenate our customer base,' so having young buyers is not an issue. The real problem was that as our customers matured, started families and increased their disposable income, we did not have the larger vehicles needed to retain them. We are going to fix this with the largest product offensive in our history.

How high is Seat's conquest rate?

After Hyundai and Kia, we are third in conquests [in Europe], as 70 percent of our buyers are new to the brand. The downside to having a high conquest rate is that it usually means you have low customer retention. This is true, but for us there are two reasons for this that have nothing to do with the brand. First, our center of gravity is southern Europe, where loyalty is 30 percent to 35 percent in markets such as Spain and Italy while it is 65 percent in Germany. Secondly, as I previously mentioned, Seat lacked compelling choices when our customers wanted to move up to the compact and midsize segments.

Seat's No. 1 market last year was Germany, with 90,003 sales, and you had an 8 percent market share in Spain. Despite that success, Seat is a non-player in France and Italy. Why?

We are proud of our success in Germany. If you are competitive there, there is no reason why you should not succeed in other markets, such as Italy and France, where we absolutely need to do better because our volumes are too small to properly amortize our structural costs.

What are your plans for the U.S. and China?

We have none at moment. Our focus is Europe, Latin America and North Africa, where we are leading VW Group's efforts in Algeria, starting with the new Ibiza in the second half of the year.

Why did Seat decide to develop electric vehicles after previously saying it wouldn't?

When I arrived, EVs were not considered to be relevant to Seat. Now adding them is a task the brand must tackle because of tougher forthcoming EU emissions rules and the declining sales of diesels. Selling EVs provides an immediate benefit toward reducing CO2 emissions from your new-car fleet. That benefit is more significant to the entire range than what you would get from launching partially electrified cars such as hybrids and plug-in hybrids.

When you debut Seat's first EV in 2019 why type of car will it be?

It will be based on a traditional platform, either the Mii minicar replacement or the next Leon compact. We will also use this first EV as test bench to understand how to sell and service an electric car. In addition, we are talking with VW Group about whether Seat could get a model from the group's MEB EV architecture. This car would come in the first half of 2020. That being said, we must be extremely cautious. Affordability is must for our customers and an EV powertrain is still considerably more expensive than an internal combustion engine.

Seat will launch a midsize SUV by the end of next year, a project that did not exist a year ago. What changed?

Seat was fighting to find a solution for a while. The idea of a midsize SUV had been discussed for a long time because such a vehicle would have had a significant impact on our profitability. When I got here in late 2014 we had the 20V20 concept, but there was no business plan or production plan for the model. I was convinced that to move Seat to the next level a midsize SUV would be much more profitable than a midsize sedan. When we made our pitch to get the model our proposal was like something you would see from an ad agency. Our message was: 'You cannot prevent us from doing this because it is just too good'. The next step was to find a plant. We looked at Mexico, by VW told us it had capacity constraints there. That was the same problem at Skoda in the Czech Republic, where they were short of capacity for their Kodiaq and our Ateca SUVs. Then someone suggested that we build it in Wolfsburg. The design of the SUV also really helped get us approval from the group. Now we are rushing to launch it within 18 to 20 months. We hope to have it on the market by late 2018.

Is this midsize SUV the first new Seat born during your tenure?

Yes, but architecture-wise my input was limited because to save on tooling costs and reduce time-to-market, we had to keep all the hard points of the VW Tiguan. I had more input on the next Leon [compact that is due in 2019]. That car will mark a strong change in our design language, being more emotional and sexy on the outside, but even more innovative inside. Our current interiors are very rational and logical. The new Leon interior will really make a leap forward, as well as introduce some innovations on architectures and body styles.

Which body styles?

As we did with the new Ibiza, we could consider ditching the three-door because volumes are fading for everyone. We will probably keep the five-door hatch and the wagon, but we'll give them more dynamic and emotional body styles.

With the Ibiza, Seat was the first brand to use VW Group's new A0 architecture. The VW Polo will come second. Did Seat engineer the architecture?

No, the Polo was made by VW. But, with help from some people from Audi here in Martorell [Seat's headquarters in Spain where it has its main car factory] we are engineering the next Audi A1, which is based on the A0 and will be built here.

When you led Lancia, you derived the Musa from the existing Fiat Idea small minivan for a mere 120-million-euro investment. Were you able to deliver something similar with the Arona small crossover that uses the MQB-AO platform?

We were very smart to obtain a new body style with a limited investment [to create the Arona] that was in the region of what you mentioned. Seat is extremely efficient with its r&d budget. Not only because we have never had so many new projects going on at once, but also because I continually get calls from other VW Group companies asking us to engineer vehicles for them. We are recognized for being quick and highly cost effective.

The initial production plan for the Ateca called for 60,000 units this year. Is it true that won’t be enough to meet current demand?

We could probably sell twice as many and, as soon as demand surpassed our expectations, we asked the factory to make more. But it is hard to cope when demand is double what was planned. This is not so uncommon when you enter a new segment because you lack an existing car parc. We faced the same problem at Audi with the Q3. When I was in Ingolstadt, we planned 70,000 units a year, but production last year reached 140,000, which by the way is great news for Seat, as we build the Q3 here in Martorell.

How high is the margin that Seat gets from Audi on the Q3?

It is a decent margin, but as a rule in the group, it is a fixed percentage of production cost. The policy is to keep a level playfield on the industrial side and leave the brands free to make as much money as they can on the commercial side.