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VW Moving Golf Production to Mexico

But gen-7 model still won’t reach U.S. shores til 2014.

by on Jan.25, 2013

The seventh-generation, or G7, Volkswagen Golf.

Volkswagen has scored quite a hit with new products like the Passat that have been retuned for the American market. But the maker still retains one frustrating German habit – delaying key product launches in the U.S. until long after they’re already on the road back in the European home market.

So, it seemed like we might be in for some good news when we heard that production of the seventh-generation VW Golf would be shifted from Germany to Mexico.  Unfortunately, we still won’t get the G7 model until sometime during the first half of 2014, still a year late.

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But VW is promising that the shift to the Puebla plant will help it better sync the launch of future generations, as the maker has come closer to doing with the bigger Passat line which is now being produced at the Volkswagen plant that opened in Chattanooga, Tennessee in 2011.

The new Golf is longer, lower, wider -- and significantly lighter than the outgoing model.

By turning to Puebla – which already produces the current VW Jetta model — there’s another advantage for Americans, at least once the Golf does arrive here.  It should minimize the impact of lopsided exchange rates that have been a significant burden on manufacturers – and buyers – of European vehicles.

“The Puebla, Mexico plant offers an excellent economic basis for Volkswagen production operations and is a well-established automotive manufacturing facility with a record of efficiency and high quality,” said Hubert Waltl, Member of the Board of Management of the Volkswagen Passenger Cars Brand with responsibility for Production. “With its existing infrastructure, competitive cost structures and free trade agreements, Mexico is the ideal location to produce the Golf for the American market.”

Mexico, in fact, has more free trade agreements than any other country in the world except for Israel, and that further encourages manufacturers like VW – along with low wages – to expand carmaking operations there.  Notably, VW’s upmarket sibling brand Audi is now setting up an assembly plant “South of the Border,” and will use it as a lower-cost global base.

Even before getting the new Golf, the Puebla plant produced more than 600,000 vehicles last year, 86% for export.  Employment, at nearly 19,000 hourly workers, might seem excessive for that output but the factory also produces a variety of body panels and components for the vehicles it assembles, more in line with the way manufacturing complexes used to operate in the U.S. and Europe.

Collectively, the Volkswagen Automotive Group plans to invest $5 billion in both the U.S. and Mexico over the next three years.  Along with expanding the Puebla operation to handle Golf, the maker is also opening a new engine plant in Silao to handle the 1.8-liter and 2.0-liter turbocharged engines that will go into the G7 Golf.

The goal is to increase to 75% the number of vehicles sold in the North American market that are actually produced in NAFTA, noted Jonathan Browning, President of the Volkswagen Group of America.

The gen-7 Volkswagen Golf was revealed last September during the Paris Motor Show.  Routinely one of the world’s best-selling vehicles, the maker hopes to increase its appeal by improving both performance and fuel-efficiency, among other claims.

The new Golf, which should be marketed in the U.S. as a 2015 model, features a markedly lighter body and platform – the G7 among the first models to be developed using the modular MQB “architecture” that will be shared by a wide range of products sold across the various Volkswagen AG brands.

The maker chose a relatively evolutionary approach to the hatchback’s styling, though it has significantly refined the interior, including a newly updated infotainment system.

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9 Responses to “VW Moving Golf Production to Mexico”

  1. bryanrmorris says:

    That’s too bad. I’m having significant quality control issues with my Mexican assembled 2012 Jetta Sportwagen. Or maybe it’s the (probably) Chinese made parts. Who knows?

    Recently, I worked a stint at Daimler trucks. One of the stories I heard was that they announced a while back that they were going to close their Oregon plant that made Western Star trucks so they could save money by making them in Mexico. Western Star trucks are typically custom rigs that sell a lot to owner/operators. Feedback that they got from these customers caused them to scrap those plans, however. They were told by those customers that they wouldn’t buy Mexican made trucks because of the quality issues.

    • Paul A. Eisenstein says:

      Interesting development, Bryan. I hadn’t heard that about Western Star. Some vehicles seem to come out of Mexico with absolutely wonderful quality, others not even close. I have a feeling it may be more about manufacturers’ investment in equipment and training than in any set capabilities of Mexican workers. Recall how the Japanese were once afraid of setting up shop in the US because they didn’t think our workers could compete.

      Paul A. Eisenstein

  2. Jorge M. says:

    Volkswagen has poured billions of dollars into the Puebla, Mexico facility including setting up all kinds of educational programs in schools and the factory to improve product quality, but there are many challenges in Mexico that remain after decades of methodical work by VW.

    That is primarily why they built the new VW factory in Chattanooga, TN. The labor force in Mexico varies dramatically and with inflation they have seen wage increases of several hundred percent in one year. While it may be cheaper to manufacture in Mexico, there is a price to pay when you look at the overall picture.

    VW like many larger Euro car maker’s wants to move as much auto production out of Germany as the Unions will allow, now that the Union workers have made them billions and billions of dollars in profits – just like in the U.S. It’s a dirty deal and everyone knows it.

    While production costs in Germany are higher than in the U.S., they aren’t that much higher. Where car companies save the most money is by making their suppliers build factories near by their U.S. or Mexican production facilities. Then the suppliers are the ones who must absorb the bulk of transportaion cost, vs VW or other Euro auto makers shipping vehicles from Europe to the U.S.

    Every time large industry exports jobs to third world countries they do so for increased profits. The company PR line is that they are doing this “to remain competitive” but if you look at their profits before and after they export the jobs, you’ll see it’s not to “remain competitive”, it’s for financial greed. They make tons of profit from production in their native countries. That’s how they can afford to build new factories in thrid world countries.

    It doesn’t matter if it’s Apple Computer using slaves at Foxconn in China to produce their products so CEO Tim Cook can receive $700 MILLION in annual compensation or VW moving jobs to Mexico or even Chattanooga, TN., it’s all done so that labor receives less compensation and benefits while management gets a lot more. IMO this is criminal but some view this as perfectly acceptable corporate behavior… Shame on them.

    • Paul A. Eisenstein says:

      Labor costs are clearly a factor working in Mexico’s benefit. But, as I noted in a throwaway line in this story, Mexico has the single-largest number of free trade agreements in the world but for Israel. That ready access to other markets is a key to Mexico’s increasing popularity.

      As to labor costs, it is interesting to see that in the fertile crescent, the Pacific Coast region where China’s economic boom has so far largely centered, manufacturing rates have been rapidly rising, especially on auto assembly lines. Makers have now begun moving to the interior but rates there will follow, as well. That Mexican labor costs have remained as low as they have continues to surprise me and is worthy of a separate, longer discussion.

      Paul E.

    • bryanrmorris says:

      I couldn’t agree with what you’ve said more, Jorge. I admit I’m guilty of buying a Mexican made car after my last one, which was American made, was totaled. But I didn’t do it for the low, low price, I did it for the features of the car. Actually, the price wasn’t that low. Sadly, the quality is starting to seem to be though. Guess I won’t make that mistake again.

      • Paul A. Eisenstein says:

        Bryan, Unless VW gets this resolved (or other makers importing from Mexico), they will continue to struggle with low buyer loyalty.

        Paul E.

  3. bryanrmorris says:

    Hi Paul,

    The big Freightliner (Daimler) Cascadia highway trucks mainly sell to fleets and are made in both Mexico and South Carolina. I’ll let you guess which ones have fewer problems.

    From what I was told, auto manufacturers in Mexico have a difficult time retaining workers. Since they are paid so little and there is so much demand, workers jump from one company’s plant to another for even a little bit more per hour. Who can blame them? But training and experience on a given line go right out the door when that happens.

    I’m not singling out any particular manufacturer, but it seems like when they move manufacturing to Mexico (or China, etc.) the main focus is cutting costs. Maintaining minimumally acceptable quality comes after that.

    • Paul A. Eisenstein says:

      Hi, Bryan,

      The good news is that focusing on cost v quality is a self-destructive strategy, especially if you plan on competing in the US market where any problems are highlighted by the likes of the JD Power Initial Quality Survey or Consumer Reports. Just ask VW about the problems they’ve had with their quality rep in the US. It’s only now that they’re getting it under control and regaining some traction here. But, I think there are many one-time VW buyers who are still reluctant to return to the fold.

      Paul E.

  4. ccweems says:

    I have no problem with this story as written. What confuses me is there is another unnamed VW spokesperson who for 20 years or more has justified VW’s high prices as the result of German design and manufacturing. This claim has even been applied to the Jetta which is built in Mexico, that means panel pressing, engines, electronics, transmissions, glass and assembly. The Mexican content is way over 90% according to the sticker.

    I want these VW guys to meet and hash out the truth. The truth I expect is that VW expects to earn substantially better margins than other car makers the same as they do in Europe. Given the volume of production the cost of German engineering per car is the same or lower than other car makers.