Volkswagen will build the Marrakesh, a small SUV based on the Golf platform, at its main plant in Wolfsburg, Germany.
But landing the project took some sleight of hand by VW and its union, IG Metall.
VW had threatened to build the SUV in Portugal, where wages are lower, unless the union could find a way to cut costs by $1,200 per vehicle. But IG Metall had no interest in backing down on wages, which are the highest in the German auto industry.
The solution: The project was handed to Auto 5000 GmbH, a unit of VW that has its own lower-cost wage deal. Auto 5000 already builds the VW Touran van. Also, about 1,000 apprentices at VW will move to the Auto 5000 unit.
As part of the deal, the union said VW also agreed to build a new vehicle in its Emden, Germany, plant under the traditional wage contract.