Volkswagen’s US Production Plans Take Shape

By Chris Haak

01.24.2008

As discussed earlier, Volkswagen has some ambitious US sales goals and wants to surpass both GM and Toyota as the world’s largest automaker by 2018. However, the dollar’s weakness relative to the Euro (or the Euro’s strength relative to the dollar, as the case may be) makes it extremely cost prohibitive to sell European-built vehicles in the US. The fact that these are not luxury cars with the typical luxury car profit margins makes Volkswagen’s situation even more difficult.

Now, VW doesn’t build all of its cars in Germany – in fact, it builds Volkswagen New Beetle, New Beetle cabrio and Jetta in Mexico for US sales – models that make up 56% of its sales in the US. But some mainstream cars like the Rabbit, GTI/R32, and Passat – plus the Touareg SUV – are built exclusively in Germany for US sales, which makes their value proposition against Asian and domestic competition questionable. Sure, German engineering is nice to have, but is it worth paying 10%+ more for a Volkswagen with questionable quality than a comparable Chevy, Ford, Honda, or Toyota?

Consequently, VW is faced with a handful of choices. They could de-content their German-built vehicles, but that would go counter to their “affordable premium vehicles” marketing message. Another option would be to expand their production in Mexico, but VW of America CEO Stefan Jacoby said that the factory in Puebla, Mexico “has come to its limit” and will not be further expanded.

That leaves the option of building a new assembly plant in the US (assuming VW would not consider building a plant in a low-cost country for US sales). Since there is already a significant German supplier and auto manufacturing base in the US South (and VW has confirmed that it will build a new plant – not where specifically, but that it would be somewhere in the Eastern time zone), and rumors are that VW has scouted sites in North Carolina, South Carolina, and Georgia, it seems likely that their new plant will be in one of those states. The new assembly plant will produce up to 250,000 units per year.

Mr. Jacoby announced today that Volkswagen is also planning to build engine and transmission plants in North America to support the new plant. He also added that VW will announce the site selection for its plant within six months. Mr. Jacoby said in Detroit last week that the new plant would likely produce the core products for the US lineup – which means the Passat (currently built in Europe), the Tiguan small crossover (also currently built in Europe), and a new future crossover. Basically, they want to produce as much of their US sales volume as they can in the US or Mexico to avoid the strong Euro/weak dollar problem.

The result of increased US production will lower the price premium charged for products like the Passat from the current 10% over rivals’ prices to 5% instead.

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Author: Chris Haak

Chris is Autosavant's Managing Editor. He has a lifelong love of everything automotive, having grown up as the son of a car dealer. A married father of two sons, Chris is also in the process of indoctrinating them into the world of cars and trucks.

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7 Comments

  1. Did I also read that VW is going to bring back the Phaeton to the United States? Can this be true? It was such a huge flop. What do they think is different this time around, besides the economy being in a recession and a bad year forecast for all car companies in 2008? What are they thinking?!?!?!

  2. They aren’t bringing the Phaeton to the US. Where did you read that? They are planning on bringing their new concept Space Up! to the US. I was just hoping they’d bring the Up! as well.

  3. Yep, Prince Valiant…Jacoby said that it was “a mistake” to stop selling the Phaeton in the US. I’d argue it was a mistake to create the car in the first place, since Audi is in the corporate fold. But alas, with Piech calling the shots at VW again, his idiotic ego-boosting Phaeton idea gets another chance to fail.

  4. If the Patheon had been sold as a Audi or Bugatti instead of VW, history could had been probably different. Being badged as a VW was a “jump the shark” from the start.

    As for VW seeking for #1, if they play their cards right and carefully, they could get it or still able to grab the #2 rank, and the next question is for how long?

    An French article from Le BlogAuto mentionned then Renault (I talk of the whole Renault-Nissan group) grabbed the #3 rank of car productions worldwide in front of Ford with the purchase of 25% of AvtoVaz’s stake. Renault had probably the same ambitions as VW and they keep an eye on a US automaker (more probably Chrysler instead of GM or Ford, unless a big surprise unexpected coming from nowhere happen)for their next move.

  5. Jeremy, here is a quote from Stefan Jacoby, CEO of VWoA about the Phaeton:

    “We are thinking of relaunching the Phaeton, which is difficult in this market. I think Volkswagen is so good at brands that we can offer models in the volume segment and also in the luxury segment. It is a state-of-the-art car, and I think this car will fit very well in this market.”

    So yes, they probably will bring it back.

  6. I love VW and I love their cars, but sometimes the things they do and say just leave me sort of puzzled. I think the U.S. plant is a good idea, but their sales projections and their stated goal of passing Toyota and GM in the next 10-15 years to be the largest auto manufacturer in the world seems like complete fantasy.

  7. They should sell both the new (mini minivan) and old (Rabbit pickup truck) versions of the VW Caddy. They could sell quite a few and the tooling was paid for sometime ago, right?

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