The History of Seat

Seat came to the attention of the Volkswagen Group as a potential partner in May 1980. Shareholder Fiat, which had been a licensor and technological impetus for the Seat model range, surprisingly withdrew from the Spanish company – with grave consequences. Seat suddenly lost its development capacity and its international sales channels. Furthermore, the product program based on the Fiat model range was in need of a thorough make-over. To start out anew, Seat required a partner with innovative product technology and access to international car markets. So the Volkswagen Group was more than welcome in 1981 when it commenced negotiations with Seat concerning co-operation to produce the Polo/Derby model series in Spain. From a strategic viewpoint, Volkswagen had the chance to expand its to date marginal position on a West European market experiencing above-average growth and catch up before competition got tougher as Spain moved towards membership of the EU planned for 1984.

In the event of a co-operation agreement, Volkswagen could benefit from Spain’s largest passenger car sales organisation with over 1,000 authorised dealers. Another argument in favour of co-operation was the strategically important access to a production location with relatively low wage costs which could be used in the longer term as a low-cost assembly plant for the Polo. It was precisely in this vehicle class that high production costs in Germany impacted on the price competitiveness of models on the European volume markets. The fact that the well-qualified Seat workforce had thirty years of experience in building cars was an added advantage. Audi AG also benefited from the co-operation agreement concluded on September 30, 1982 because Seat’s foreign exchange quota permitted duty-free imports of Audi models. In return, Volkswagen responded to a request from the Spanish car-maker for a licence to produce the Passat/Santana series, and the first vehicles rolled off the assembly lines at the Barcelona plant in Autumn 1983. The Pamplona factory began producing the Polo for sale in Spain and selected other European markets in Spring 1984. Volkswagen supplied the engines, gearboxes and axle and steering components for both models. Seat produced the steel sheets in its own press shop. All other parts came from local automotive suppliers. The co-operation benefited both sides. The Spanish manufacturer’s model range, sales and capacity utilisation improved to such an extent that the Spanish government offered the Volkswagen Group the chance to take over Seat in Autumn 1984. The Volkswagen Group came off well too. Sales through Seat dealers had given the company access to the Spanish market and significantly improved the presence of the Volkswagen and Audi brands on it. At the same time, production at the Pamplona plant brought the prospect of building the Polo more cheaply than in Wolfsburg. To harness the potential offered by the Spanish facilities and to equip the Seat brand for international competition, Volkswagen saw a need for financial consolidation, streamlining of the model range, modernisation of production plant and the creation of a European sales organisation. The efforts already undertaken by Seat gave cause for optimism.

SEAT 600 VOR DER VERSCHIFFUNG — SEAT 600 PRIOR TO SHIPPING

In 1965, Seat entered the export business, shipping 150 Seat 600s to Colombia, though contractual arrangements with Fiat severely restricted its export capability. It was not until 1967, when the licensing contract with the Italian car-maker was renegotiated, that export restrictions were substantially relaxed. In the same year, Fiat boosted its stake in the growing Seat concern to 37 percent. Following on from the exports to Colombia, Seat gained a foothold in Argentina, Morocco, Greece and Finland, where the Seat 600 D was the best-selling car between 1970 and 1973. Despite the Franco government’s attempts to close off the Spanish market by imposing high import duties, US car-makers intensified competition during the 1970s. Both Ford and Chrysler built their own assembly plants in Spain. These trends ultimately exposed the f laws in Spain’s dirigist economic policy, before the country adopted a more market-economy driven approach after Franco’s death in November 1975. On the orders of the Spanish government, Seat took over the British Leyland AUTHI plant in Pamplona in 1975 in order to avoid the social problems that the planned closure of the factory would otherwise have triggered.

The stipulated expansion of capacities, productivity shortfalls and substantial investment in building the “Centro Technico” at the Martorell industrial park put Seat in the red in 1977. Those losses, together with sales problems of its own, may have been the reasons behind Fiat’s decision to cancel the takeover agreement signed in 1979. The unexpected withdrawal of the Italian car-maker in 1980, followed by a collapse in sales down to just 200,000 units, ultimately catapulted Seat into crisis. The restructuring programme launched in 1981 paved the way for automation of the Barcelona and Pamplona plants and for significant job cuts. Seat’s workforce was cut by one quarter, to roughly 23,600, by 1984. In the same year, the brand’s first independent model made its appearance: the Seat Ibiza, designed by Giorgio Giugiaro, with a prototype built by Karmann and engines supplied by Porsche. The Marbella small car and the Malaga, a notchback based on the Leon, were subsequently added to the product range.

Under the umbrella of the Volkswagen Group the Spanish brand developed promisingly, meeting expectations on both sides. By 1990, Seat’s production increased by more than half to 361,629 vehicles, while production at the Pamplona plant, where some of the Polo production capacity had been moved from Wolfsburg in 1986, rose by a third to 143,750 units. Seat increased its market share in Spain from 12 to 20 percent, and also assured the Volkswagen Group of a solid competitive position by selling the Polo as well as Volkswagen and Audi imports. Seat was equally successful on European volume markets. Between 1986 and 1990, exports of Seat’s own models increased by almost 80 percent to around 243,000 vehicles, chief ly sold in Italy, France and Germany. Spain’s largest automotive exporter and leader on the car market was thus supporting the Volkswagen Group’s volume strategy and helping to uphold its leading position in Europe which had been attained for the first time in 1985.

By 1988 this growth, combined with rising productivity, already meant that the Spanish brand was making a profit. The Wolfsburg parent company initiated an extensive investment programme to consolidate that success. Over the following five years, several billion Deutschmarks were invested in an assembly plant at Martorell and the modernisation of the other factories, in expanding the research and development centre, and in developing a new model range.

The Toledo, launched in May 1991, was the first model of a new generation featuring Volkswagen Group product technology and marked Seat’s entry into the highly-competitive mid-class market. The Toledo was followed by the new Ibiza and the notchback Cordoba in 1993. Both models were built at the Martorell plant, a lean factory networked with suppliers, with a daily capacity of 1,500 vehicles, which set a new productivity standard within the Group’s production alliance by achieving a throughout time for a complete vehicle of less than 20 hours.

But it seemed that progress in products and production came too late. Weighed down by the global economic crisis, which reached its peak in 1993 and led to massive sales drops, the financial structure of the Group’s Spanish subsidiary, stretched by high investment in factories and model roll-outs, began to crumble. Volkswagen AG compensated for the losses with a capital write-down in April 1994, laying the foundations for a fresh financial start. But the high financing cost of the Martorell factory combined with low equity capitalisation required further support from Wolfsburg in the years to come as well.

The recession had clearly highlighted the latent structural cost problems which were hampering Seat’s sales as price competition on European volume markets became tougher. The consolidation strategy deeply affected the factory structures of the Spanish company. In December 1993, the Volkswagen brand took over the Pamplona plant building the Polo. Production of the Toledo was relocated from Barcelona to Martorell in Autumn 1994. Once production of the Marbella small car series was stopped in early 1999, the Zona Franca plant, the very first Seat production facility, focused on manufacturing components for Martorell and other Group plants. By the end of 1994 the workforce had been cut by one third, to 15,838, while the first work organisation reforms began to take effect. Flatter hierarchies more than halved the number of management posts. The new collective pay agreement established more f lexible working times. Moreover, Seat pushed on with the development of its Martorell plant, transforming it into a modular factory and utilising the potential for rationalisation offered by the Group platforms to extend its product range. Technically based on the Polo, the Inca small van and the second-generation Caddy went into production at Martorell in 1995. In the same year Seat launched the Alhambra, a people-carrier built as part of a joint venture by Volkswagen and Ford in Portugal.