SAN JOSE CHIAPA, Mexico -- Audi AG brought more than 100 supplier executives to Mexico in early May, wooing them with a ride through the countryside that left their matching white Q5 crossovers splotched with mud.
And the courtship came with a firm message: If you want to supply the next Q5, consider setting up shop in Mexico.
The German company is making its first foray into North American production, and local supplier output is a key hedge against fluctuating currencies.
Audi plans two supplier parks near its Mexico assembly plant, which is scheduled to start building the Q5 in 2016. One park, to be built on 150 acres adjacent to the plant, will house at least 16 suppliers, said Thomas Dahlem, head of production for the Mexico plant project. The other, a half-hour drive away and midway between Audi's plant and Volkswagen's 46-year-old Puebla factory, will be for companies that want to supply both plants.
"Some core suppliers will be elsewhere," Dahlem said. "But others, we will insist that they come here."
Audi plans to follow the sourcing lead of VW's plant in Chattanooga, which started building the Passat two years ago. VW gets 85 percent of the sedan's content from North American Free Trade Agreement countries (the United States, Canada and Mexico), a spokesman said.
Initially at its Mexico plant, Audi wants 60 percent of Q5 parts made in NAFTA countries, Audi AG CEO Rupert Stadler said. Eventually, the company wants 80 to 85 percent of Q5 parts from those countries.
Audi's strategy carries some risk: Mexican suppliers have limited experience with luxury vehicles. Audi will join Cadillac and Lincoln as the only major luxury brands building vehicles in Mexico for U.S. sale.
Still, Stadler is confident. "I don't see, really, any problems," he said. "We did the same job in Hungary. We did the same job in Foshan, China. So why shouldn't it work here?"
Audi's plan is part of a trend toward local supply bases. Last year, for instance, Mercedes-Benz reached a deal to use engines from a Renault-Nissan plant in Dechard, Tenn., in the next C-class sedan, which Mercedes is scheduled to start building next year in Vance, Ala.
Like the VW plants in Puebla and Chattanooga, the Audi plant will get engines from the VW Group's new engine plant in Silao, Mexico, 300 miles to the northwest.
