VW’s Mexican Revolution

For Volkswagen, the path back to prosperity in North America hinges on a multi billion dollar investment in Mexico. While there has been talk of VW building a new plant in the U.S. by 2010, for now the focus is firmly on the company’s longestablished Puebla, Mexico plant.

These images were pulled off of an internal video as no photographers were allowed into the plant. (above) .Several of the 9,500 workers load engine and suspension modules onto a cart to be delivered to the assembly line. A new five-cylinder engine is assembled, while pistons are inspected .The engine plant can pump out 1,000 engines a day.

Body side stampings transfer through the huge, 80-ton Muller Weingarten press. It can produce 11 different parts at full capacity and stamp 15 pieces per minute.

Puebla, founded in 1967, becomes the exclusive source worldwide for the 2005 Jetta sedan (sold as the Bora in Europe), which goes on sale in the U.S. in March. The current generation Jetta is built in Germany as well as Mexico, but going forward, North America’s role as the dominant Jetta market dictated the change of strategy.

The new Jetta is the key to VW of North America’s plans to revive its sales and profitability in the U.S. Sales last year slid by 12 percent to around 260,000 units as VW struggled to move older models in an ultra-competitive marketplace. Traditionally, the Jetta nameplate has been VW’s most popular model in the U.S. market.

The all-new version is longer, wider and has a more powerful 2.5L five-cylinder engine in place of its predecessor’s 2.0L, 115 hp fourcylinder unit. A diesel engine and turbocharged 2.0L gas engine will be added to the powertrain line-up in 2005. In terms of transmissions, a new optional six-speed automatic with Tiptronic is offered as well as VW’s tap shift-style DSG gearbox (TDI only). The ’05 Jetta has the model’s first fully independent suspension system that uses a multi-link rear and optimized front axle.

U.S. sales of the current generation Jetta have averaged 130,000 per year since its launch in 1999, but the company expects the new version will top 140,000 units in 2005. VW will also launch the next-generation Passat, the company’s larger family car, in 2005 but its fall arrival will be too late to add a significant boost to the year’s sales.

Moving later into 2005 and 2006, however, VW expects to shift into high gear with the arrival of a face-lifted Beetle, new 280 hp VR6 engine in the Passat, a Passat wagon and finally, two years after its European launch, the latest version of the Golf hatchback.

Though the prolonged new model roll-out is less than ideal, VW of America’s enthusiastic Vice President Len Hunt is undaunted. The coming new models will display the driving characteristics that made VW famous in the past, Hunt says, as opposed to the “appliancelike” character of rival models.

“I see an increasing world of vanilla cars,” notes Hunt. “Other products are dumbing down. That’s all right for people who don’t care about driving appliances from A to B. But we stand for people who do give a damn how they get from A to B. I want VW to be known as a brand that is against beige-ism, suburbanism and vanilla-ism,” says Hunt.

Starting at under $18,000, VW believes the new Jetta will represent good value in the market, even though its average transaction price is likely to increase slightly. One positive aspect of the new Jetta launch is that, for a change, the U.S. is the lead world market for a VW model introduction. A successful reception here for the Jetta would be doubly pleasing for VW of America, which marks 50 years business in the U.S. in 2005.

As part of its worldwide manufacturing strategy, VW decided several years ago to focus on Puebla as a main source for North America product. So over a five-year period, from 2003 to 2008, VW is pumping $2 billion into revamping its sprawling Mexican operation. The investment includes $800 million dedicated to the production of the new Jetta/Bora sedan, which shares Puebla with the “new” Beetle.

A tour of the sprawling 9.8 million sq.ft. plant reveals major expenditure ($290 million) on a new five-cylinder engine production line capable of producing 1,000 powerplants a day. The press shop has been treated to a huge, new Muller Weingarten 80-ton transfer press (costing approximately $50 million). It can produce up to eleven different parts when operating at full capacity at a rate of 15 per minute. The die sets can be changed in only 10 minutes. In the body shop, a $200 million investment has brought 460 new Kuka robots, increasing the amount of automation by 80 percent. Laser welding has been increased from 5 to 35 percent of body parts. There are nearly 14 times more laser-welded seams than on the previous model. This gives the new Jetta a stronger body than its predecessor, with double-digit improvements in its dynamic and torsional rigidity. As well as the laser welding system, this is achieved through the use of more high-strength body panels and improved design and engineering. According to VW, the net benefit of this bonding process is a class-leading fit and finish, improved body strength, crash protection, driving dynamics, and reduced interior noise.

Despite the increase in automation, Puebla still employs in excess of 13,000 people, including 9,500 blue-collar workers. Total capacity at the plant stands at 430,000 units, 80 percent of which are exported to various regions of the world. As well as complete vehicles, engine components are exported to China, South America and Europe.

Puebla is also home to several Tier 1 suppliers such as JCI, Lear and Magna, which all produce modules for the Jetta on a JIT basis right by the plant. Two supplier parks next to the plant house 25 key suppliers. Overall, VW has 272 suppliers in Mexico, many of which are subsidiaries of Tier 1 suppliers.

Labor rates at the VW Puebla plant are about $27 per day, without benefits. According to VW, that rate is comparable to other older plants in Mexico, such as those owned by General Motors and Nissan. However, newer plants have lower wages.

Though Mexican wage rates are very low by U.S. standards, they cannot hope to compete with those in China, where the daily wage amounts to around $5. That disparity has already led some companies to reconsider their Mexican strategies. Nissan boss Carlos Ghosn, for example, recently warned Mexican suppliers to become more competitive with emerging economies such as China and Thailand.

Even with the China factor, VW chairman Bernd Pischetsrieder recently said that if consumer demand increased sufficiently in North America, a U.S. plant could be considered. VW last produced cars in the U.S. in 1988 when it closed its plant in Westmoreland County, Penn., after sales of the Golf declined sharply. The Westmoreland factory produced a total of 1.2 million Rabbits and Golfs from 1978 to 1988.

A new U.S. plant would demonstrate the company’s commitment to the American market, Pischetsrieder noted.