Will VW Shrink SEAT Unit?

Deep budget cuts needed to prepare Volkswagen AG for the financial impact of its expanding engine emission scandal could push the company to dramatically scale back its money-losing SEAT brand, Bloomberg News suggests.

SEAT has piled up €1.4 billion ($1.5 billion) in losses over the past seven years, including a €40 million deficit in the third quarter of 2015. Unit sales fell 3% in October.

VW has invested €2 billion over the past five years to help revive the Spanish company. Before VW’s emission scandal broke in mid-September, VW also vowed to pump another €3.3 billion into the business it acquired in 1986. The unit has installed Luca de Meo—a former Audi sales chief and leader of Fiat SpA’s successful turnaround a decade ago—as brand chief. The company also is readying new products, including an entry in the popular SUV market segment, due next spring.

But now VW is freezing all “non-essential” investments. And SEAT—along with most of VW Group’s other marques—faces cuts to offset some €9 billion in repairs and fines related to cheating on nitrogen oxide and carbon dioxide emission tests for roughly 10 million of its diesel engines.

VW Group’s 12 brands currently offer more than 300 models. Bloomberg says CEO Matthias Mueller is almost certain to include SEAT in its plans to shed slow-selling variants. Analysts say cutbacks could enable SEAT to realign some of its capacity to make more popular models from other group brands.