The Ateca will be joined by the Arona subcompact SUV this year followed by a midsize crossover due in 2018. Growing to three SUVs from zero will expand Seat's coverage of the European market to 72 percent from 53 percent, de Meo told Automotive News Europe. De Meo wants SUVs to account for 30 percent to 35 percent of Seat's global sales, up from 5 percent last year, because he knows it will help Seat maintain its financial well-being.
Subcompact SUVs such as the Arona have a transaction price that is 15 percent higher than same-sized hatchbacks, figures from market researcher JATO Dynamics show. Industry sources say that about 4 to 6 percentage points of this premium translates into higher profits for automakers. In the compact segment, the additional margin ranges from 8 to 10 percentage points. Some of this comes from strong customer demand for models with higher specifications, something that Seat is already seeing. "Over 36 percent of the Ateca sales are with 4wd," de Meo said.
Because of the Ateca's arrival, efficiency improvements and a rebound of its core southern European markets, Seat overcame its heavy reliance on low-margin small cars -- 42 percent of its total volume last year was from minicars and subcompacts -- to report a 143.5 million euro operating profit.
Revenue rose 3.2 percent to a record 8.6 billion euros and Seat had an operating margin of 1.7 percent. By comparison, the VW brand's margin was 1.8 percent last year.
Seat's financial turnaround, which happened less than 2 years after de Meo's arrival, came at a crucial time. When VW Group moved the Italian executive from head of sales at Audi to the top job at Seat in September 2015, the parent company was facing the biggest business crisis in its history. With massive legal bills and costly fines looming because of VW Group's admitted cheating on emissions tests, several experts suggested that struggling Seat should be closed. That way a potentially cash-strapped VW Group could focus on its more profitable Czech subsidiary, Skoda. Although Seat's return to profit has reduced speculation about the brand's future, there are still some who believe VW Group would be better off without the automaker.
"The short-term pain of terminating the Seat brand would probably end up helping the group's focus, pricing and profitability in the long run," said Max Warburton, an auto analyst at Bernstein in London. "The brand means almost nothing to consumers. Building it into something truly profitable and viable is not totally impossible -- it's just going to cost huge amounts of time, money and other resources. Resources that could be used better elsewhere in the VW Group." Arndt Ellinghorst, an auto analyst at Evercore ISI in London, has a different view. "Keeping Seat was the right decision," he said, adding that "closing down Seat is too expensive in any case."