VW's Mexican expansion leads push to boost N.A. sales
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DETROIT (Bloomberg) -- Volkswagen CEO Martin Winterkorn opened an engine factory in Mexico to drive forward the automaker's North American offensive.
After unveiling a sport-utility vehicle at the Detroit auto show aimed at challenging the Ford Explorer, Winterkorn opened the $550 million engine factory in Silao, northwest of Mexico City, on Tuesday.
"With this new plant, we are driving our ambitious North American offensive forward," Winterkorn said at the factory opening.
The facility, which will supply VW's two North American assembly plants with as many as 330,000 engines a year, marks the manufacturer's 100th production site.
VW this year will have 77 percent of its production capacity outside its home country, moving past General Motors Co.'s 76 percent and ahead of Toyota Motor Corp.'s 59 percent, according to consultancy Oliver Wyman.
VW's plan to open the plant in North America underscores the carmaker's ambition to take on GM more directly in the U.S. automaker's home market as part of a strategy to make VW the world's largest automaker by 2018.
VW plans to spend $5 billion over the next three years to expand in the region. Growth there is critical for VW to offset a demand decline in Europe that threatens to halt its progress.
Catching up
"Volkswagen has a lot of catching up to do in the U.S.," said Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany. "They won't reach their 2018 goals if they don't get stronger" in North America.
Volkswagen's global sales are forecast to edge 0.7 percent higher to 9.15 million vehicles in 2013, its slowest growth pace since the financial crunch in 2009, according to IHS Automotive. Growth in the U.S. and China will be needed to make up for a 5.8 percent drop in European deliveries as German demand stalls and the Polo subcompact ages.
Underscoring the need for growth outside its home market, VW Group sales in Europe plunged 14.5 percent to 199,954 in December, bringing the drop for the year to 3.11 million vehicles, a fall of 1.1 percent. The total market fell 7.8 percent to 12.5 million in 2012, according to the ACEA industry group.
After carving out leading positions in Europe, China and Brazil, Volkswagen has disappointed in the United States, where its 4 percent market share pales compared with its control of about 15 percent of global sales.
That's starting to change. Demand for Audi and VW-brand vehicles in 2012 surged 31 percent to 580,200 cars, beating the previous high from 1970 when the Beetle and Microbus helped define American culture. This year, VW aims to report a profit in the United States, its first there since 2002.
Passat
The new face of VW in North America is the Passat. The mid-sized sedan, built in a new $1 billion factory in Tennessee, is bigger and cheaper than the European version. The Passat and the Mexican-made Jetta combined to account for two-thirds of VW sales in the United States in 2012, the first full year for the U.S.-made sedan.
"Volkswagen was always a unique buy, different from the mainstream," said Michael Morais, chief operating officer of Open Road Auto Group, which operates 15 showrooms in in New York and New Jersey, including three VW stores. Now, they're combining bread-and-butter models with "very enthusiastic products that inspire," he said.
VW's push into the mass market will take another step when it rolls out a production version of the Crossblue concept unveiled at the Detroit show. The seven-seater would challenge the Ford Explorer, Jeep Grand Cherokee and Toyota Highlander as a sportier family-car alternative to a minivan.
SUV expansion
SUV sales account for 29 percent of the U.S. market, the biggest segment after sedans. VW forecasts SUV demand to grow more than 20 percent by 2018, outpacing all other niches. In addition to the Crossblue, VW premiered the Taigun compact concept at the Sao Paulo auto show in October. The two models would double VW's SUV lineup, which currently consists of the upscale Touareg and the smaller Tiguan.
To check VW's American growth plans, GM will introduce 13 new Chevrolet models in the United States this year and will refresh 70 percent of its U.S. lineup over a year and a half, including the full-sized Impala sedan and the Corvette sports car. GM intends to grow faster than competitors in the United States after its market share hit an 88-year low in 2012.
Toyota, which regained the global sales crown last year, will look to defend that lead in 2013 when it updates mass-market models like the Corolla, which competes with VW's best-selling Jetta in the United States.
Those efforts may do little to slow VW's progress. The carmaker is forecast to boost its U.S. market share to 4.3 percent this year, even as GM and Toyota stagnate at 17.9 percent and 14.4 percent, respectively, according to a survey of five analysts compiled by Bloomberg.
"Volkswagen is like a tanker," said Frank Biller, an analyst LBBW in Stuttgart, Germany. "Once heading in one direction, it can hardly be stopped. The 2018 strategy has proven to be the right course."
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