VW plans Golf push in Americas with shift to Mexico

Volkswagen plans to produce its Golf hatchback in Mexico as part of a push for market share in North America, where it trails global rivals.

VW will build the Golf at its factory in Puebla beginning in the first quarter of 2014, the company said today. Golfs built at the plant will be sold in North and South America, and the production will supplement output of the model at VW's home base in Wolfsburg and in Zwickau in eastern Germany, said Christoph Adomat, a spokesman.

Producing the Golf in Puebla allows Volkswagen to make "further strides towards the goal of building more than 75 percent of the cars Volkswagen of America sells in the North American region," Volkswagen's North America chief Jonathan Browning said in a statement.

The move to build the Golf in Mexico is part of a plan to spend $5 billion over the next three years in North America. Growth there is a critical to CEO Martin Winterkorn's strategy to become the world's biggest carmaker by 2018. By adding Golf production in Mexico, VW plans to benefit from lower labor costs and hedge against unfavorable currency fluctuations between the dollar and euro.

Competitive structures

"With its existing infrastructure, competitive cost structures and free trade agreements, Mexico is the ideal location to produce the Golf for the American market," Hubert Waltl, the head of production at VW's passenger car brand, said in the statement.

"Volkswagen has ambitious growth plans and localizing production is crucial for these plans to work out," said Daniel Schwarz, an analyst with Commerzbank in Frankfurt. "You can't be successful in the mass-market segment if you only import cars."

Underscoring the need for growth outside its home market, VW's sales in Europe plunged 15 percent in December, bringing the 2012 drop to 1.1 percent. The European car market is forecast to decline for the sixth straight year in 2013 because of the effects of the debt crisis.

Volkswagen, which has increased sales in markets such as China, Brazil and Russia in recent years and gained market share in Europe, lags behind General Motors and Toyota Motor Corp. in U.S. volumes. To help catch up, VW earlier this month opened a $550 million engine factory in Silao, Mexico, to supply its two assembly plants in North America.

Volkswagen will not need to hire more workers to accommodate Golf and GTI output at the Puebla site, Browning told Automotive News today, suggesting the automaker does not have immediate plans to add assembly lines.

"The employment remains stable. The capacity is not explicitly increased through this investment," Browning said. "That doesn't mean it couldn't be increased going into the future."

VW's Puebla, Mexico, complex currently builds the Beetle, Jetta sedan and Jetta wagon and is the largest automobile manufacturing plant in North America. VW produced a record 604,000 vehicles at the site in 2012.

U.S. sales surge

Fueled by demand for the U.S.-version of the Passat mid-sized sedan, sales of Audi and VW-brand vehicles in the United States surged 31 percent to 580,200 cars last year, 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 U.S., its first there since 2002.

The Golf is the backbone of Volkswagen's new MQB platform, which will serve as the underpinnings for future Audi, Skoda and Seat vehicles. The strategy seeks to lower production costs 20 percent as it assembles cars faster and with fewer components.

The Golf is built at German plants in Wolfsburg and Zwickau, and in Changchun for Chinese customers. VW says it sold 52,800 Golfs in North, Central and South America last year, with 40,885 deliveries in the United States.

Light-vehicle output in Mexico hit a record 2.98 million units last year, up from 2.65 million in 2011, as more automakers take advantage of the country's low wages, trade accords, central location and increasing quality. Nissan Motor Co., Honda Motor Co., Mazda Motor Corp. and Toyota are also expanding output or building new assembly plants in the country.

VW plans additional shifts in Wolfsburg to meet demand for the Golf, with orders exceeding 100,000 cars, the company said on Jan. 23. The seventh generation of the Golf was first presented at the Paris auto show in September 2012 and went on sale in Europe shortly after.

It will go on sale in the United States in the first half of 2014.

VW says it will be equipped with more features, improved safety, and more performance than the outgoing Golf. It will also weigh less than the current Golf to improve fuel economy.

Gabe Nelson, David Phillips, Bloomberg and Reuters contributed to this report