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* Skoda targets upmarket buyers with concept car
* Seat to focus on Europe after China export failure
* Skoda and Seat to miss 2018 sales targets - IHS
By Andreas Cremer
GENEVA, March 5 (Reuters) - If Volkswagen wants to beat Toyota to the global autos throne, it can't afford to take its foot off the gas in mass-market cars.
Yet two of its three volume brands continue to cause headaches, with Czech division Skoda trailing ambitious sales targets and Spanish carmaker Seat battling a decade of losses.
Lower down the chain, VW is also struggling to hit cost goals for its planned budget car for emerging markets, a VW executive told Reuters on Tuesday.
To overcome its low-end woes, the German group is now striking out in a new direction to boost the image and appeal of Skoda and Seat, moving the former back upmarket while refocusing Seat on Europe after a failed China export strategy.
The European auto slump caused Skoda deliveries to fall 2 percent last year to 921,000, well short of a 2018 goal of 1.5 million. Sales at Seat were up 11 percent at 355,000, but underutilised capacity served to extend its long run of losses.
By contrast French carmaker Renault's budget models helped it to defy a weak Europe and score significant gains in emerging markets, with a particularly strong showing from its no-frills Dacia brand.
Without a turnaround in mass markets for VW, Europe's No.1 automotive group could struggle to surpass Toyota as the world's biggest carmaker by 2018. In the nearer term, failure to get to grips with the lower-cost brands is likely to weigh on its share price.
"VW needs a compelling presence in volume segments and emerging markets if they're serious about clinching the top spot and retaining it," said Stefan Bratzel, head of the Centre of Automotive Management think-tank near Cologne.
Regardless of whether it surpasses Toyota, VW must succeed in lower-cost categories to remain a force in a volume segment that brings the economies of scale required to meet its profit goals. Skoda and Seat accounted for 13 percent of VW's 9.7 million record sales last year.
The Wolfsburg-based company rejected suggestions that the change of tack may renew past friction between Skoda and Seat and with the core VW division.
There is always a risk of toes being stepped on in a group spanning 12 brands and about 300 distinct models. In 2009 Skoda's Superb estate trumped VW's equivalent, but more expensive, Passat in quality surveys and offered features that were priced as extras in the Passat. The upscale shift ruffled feathers at VW, resulting in the departure of Skoda's CEO.
"Why should Skoda build only practical cars," VW Chief Executive Martin Winterkorn told Reuters. "However, we must ensure precise distinctions are made between the brands, that the brands interact well and that everyone finds their corner."
Previously positioned as VW's budget alternative for eastern Europe and Asia, Skoda will target more affluent buyers in future, its CEO said in an interview with Reuters.
Skoda flaunted its elegant Vision C concept car at the Geneva auto show this week, its first coupe alluding to a more dynamic styling of future vehicles - the five-door model has enclosed door handles and triangular headlamps.
"We never before expressed passion in our products," CEO Winfried Vahland said. "It's like the brand is growing up."
Similarly, Seat is countering its image as the black sheep of the VW group by offering more variants of its Leon model and sharpening its focus on rebounding European markets.
Though reducing non-production staff and administration, it's unclear when the Spanish business will return to profit, CEO Juergen Stackmann told Reuters. Seat has amassed 1.5 billion euros ($2.06 billion) of losses since 2005
The brand is now reaching beyond its traditional base of young city dwellers, targeting families and fleet operators with the Leon ST, its first estate. The model has attracted 20,000 orders within weeks, Stackmann said.
Seat is also considering building cars in China, he said. Plans by his predecessor to expand to China from Seat's base in Martorell failed because of high import duties and distribution problems, Stackmann said. Seat sold a dismal 1,100 cars in the world's biggest market in its first full year there in 2013.
Forecasters, however, remain sceptical that VW's shake-up will have the desired effect.
"VW has such a spread of the (volume) market with the likes of Skoda and the VW brand. Seat doesn't fit right with that portfolio," said Jonathon Poskitt, head of European forecasting for specialist analyst LMC Automotive.
Seat deliveries could rise 30 percent to 462,000 cars by 2018, research firm IHS Automotive estimates, still short of Stackmann's goal of 500,000. Sales at Skoda, meanwhile, could grow by 26 percent to 1.16 million vehicles, the forecaster says, against a target of 1.5 million.
"I view myself as a member of a relay team taking part in a marathon run," Stackmann said. "It's a tough business."