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New VW may be built in Portugal

Eye on U.S.
Venture: Autoeuropa

Plant: Palmela, Portugal

Current products: VW Sharan, Ford Galaxy, Seat Alhambra

Market: Europe only

Plant capacity: 170,000

End of current production arrangement: 2004

Consideration after 2004: No Ford product; VW product shipped to U.S., Japan

LISBON, Portugal - If the Portuguese government has its way, Volkswagen dealers in America will get a new compact minivan around the middle of this decade.

Volkwagen AG is studying a plan to build a small van in Portugal that would be exported to the United States and Japan. The small van would be based on the Passat.

Such product decisions are the job of automakers and their sales arms. But for Volkswagen there is slightly more to it than that. The Portuguese have a major economic stake in VW's plant on Europe's west coast, and government officials say they will assist Volkswagen in moving its local product line into U.S. exports.

Volkswagen operates its Autoeuropa minivan plant in Palmela, Portugal, building about 135,000 vehicles a year. The output is distributed exclusively in Europe by VW; Ford Motor Co., which owned 50 percent of the factory until it sold out two years ago; and VW subsidiary Seat.

But Volkswagen's situation there is changing. Ford's 50,000-unit share of the minivan production, sold as the Galaxy, will expire at the end of 2004. Volkswagen, which has invested nearly $2 billion in the venture, must replace the current product with one it can sell single-handedly after that.

With its recent addition of workers, Autoeuropa can build as many as 170,000 vehicles a year - meaning VW could have as many as 80,000 to 90,000 units available for export.

Introduction in the U.S. market is likely, says Autoeuropa Executive Director Gerd Heuss.

Economic cornerstone

Where the local government fits into the plan is unclear. But Diogo Alarcao, director of Portugal's auto industry support organization, ICEP, says championing the Volkswagen project is its most vital concern.

Alarcao says Portugal's national auto sector depends on Autoeuropa. Autoeuropa also carries a major piece of Portugal's economy on its back: Ninety percent of the plant's output is exported to other European countries. Last year that trade represented 11 percent of the small country's export volume.

To Portugal's economists, Volkswagen's product plans are important. Something will have to fill the hole that Ford will leave in 2004. The addition of a high-volume market such as the United States would more than compensate.

How big?

But that raises a question for VW planners: whether to make its European vehicle bigger or to sell a small minivan in space-obsessed America. Autoeuropa's current products are the VW Sharan, Ford Galaxy and Seat Alhambra, with a platform that is significantly smaller than minivans sold in the United States.

But import-brand minivans have been getting bigger. The Honda Odyssey now is the largest vehicle that Honda Motor Co. makes. The U.S.-built Toyota Sienna is bigger than the imported Previa it replaced. The replacement for the Nissan Quest is expected to move closer to full-sized status when it appears in 2003.

Light trucks have been a noticeable gap in Volkswagen's fast-growing U.S. story. VW's only entry in the sector is the aging EuroVan, a boxy German import that sold fewer than 200 units a month last year.

But VW is mobilizing. The automaker is working on a Mexican-made pickup based on its Advanced Activity Concept vehicle revealed in 2000. There also is a sport-utility in the works from a collaboration with Porsche AG.

The truck gap is an ironic situation for the brand. It was Volkswagen's bullish push into small trucks in the United States in the 1960s that triggered the 25 percent chicken tax on imported trucks.

Although VW's U.S. fortunes shrank over the following three decades, the truck tariff stayed on the books, causing irritation to Volkswagen's Japanese import competitors ever since.

You can reach Lindsay Chappell at lchappell@crain.com

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