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New Mexican Engine Plant to Support VW’s Chattanooga Assembly Line

Part of $4 billion U.S. expansion campaign.

by on Sep.22, 2010

Published reports out of Mexico suggest Volkswagen will build a new engine plant about 250 miles from Mexico City.

Volkswagen is reportedly planning to announce, later today, that it will add a new engine plant in the Mexican state of Guanajuato.  The facility is expected to supply powertrains to the automaker’s new assembly line in Chattanooga, Tennessee, and is part of a $4 billion investment campaign aimed at tripling VW sales in the U.S. by 2018.

The Chattanooga plant is scheduled to begin building an all-new model that VW has said will be critical to its effort to revitalize the American market, which peaked at roughly 600,000 sales a year in the early 1970s but is currently running at less than half that volume.  The ongoing question has been where the engines for that vehicle, codenamed NMS – for New Midsize Sedan — would come from. (See Ken Zino’s Mexican President Visits VW’s Puebla Plant)

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Jochem Heizmann, a member of the automaker’s Executive Council, gave a hint during a trip to Mexico, in July, saying VW planned to invest $1 billion in that country over the coming three years.

Efforts to win the engine plant investment has reportedly triggered a wave of incentive offers from localities in the U.S. and Mexico.  But an issue of Milenio, a Mexico City newspaper, quotes “federal government sources” indicating Guanajuato, located about 250 miles northwest of the nation’s capital, has won the battle.

While the decision creates some logistical challenges, VW apparently decided the Guanajuato site solves two problems at once.  The new engine plant will reportedly service both Chattanooga and the existing Volkswagen assembly plant in Puebla, Mexico.  That line is a critical anchor in the Volkswagen distribution network for North, Central and South America, producing such key products as the all-new Jetta.  Puebla will also get the upcoming remake of the Beetle, which is considered another key offering for the U.S. market expansion.

In all, VW officials say they are hoping to expand sales in the U.S. to 800,000 annually over the next eight years.

A VW insider confirmed a significant announcement will be made on Wednesday but declined to discuss specific details.

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