Volkswagen has fallen behind its global rivals in North America and so to increase its market share, it is now planning to start production in Mexico for its Golf hatchback. Starting in the first quarter of 2014, VW will produce the Golf at its plant in Puebla. VW spokesman Christoph Adomat said that Golfs assembled at this plant will be offered in North and South America.
Its production will supplement output of the model at VW's home base in Wolfsburg and in Zwickau in eastern Germany.
In a statement, Volkswagen's North America chief Jonathan Browning said that producing the Golf in the Puebla factory aids Volkswagen to hit its target of producing over 75% of the cars Volkswagen of America offers for sale in the North American region. This plan to build the Golf in Mexico is part of a strategy that seeks to spend $5 billion over the next three years in North America.
The growth in this area is crucial to CEO Martin Winterkorn's scheme to attain the title as biggest automaker in the world by 2018.
VW wants to build the Golf in Mexico to benefit from reduced labor costs and to protect itself from the unfavorable currency fluctuations between the dollar and euro. In a statement, Hubert Waltl, the head of production at VW's passenger car brand, said that Mexico is the “ideal location” for the Golf production because of its infrastructure, free trade agreements, and cost structures that are competitive.
Daniel Schwarz, an analyst with Commerzbank in Frankfurt, said that Volkswagen has lofty growth targets to meet and so it would have to localize production in order to realize those plans.
He added that the company can’t succeed in the mass-market segment if all they do is import cars. VW really has to expand outside its domestic market. In December 2012, VW’s Europe sales fell by 15%, contributing to the 1.1% decline in 2012. Because of the impact of the debt crisis, the European car market is predicted to decline for the sixth consecutive year in 2013.