Thursday, June 9, 2011
Friday, June 3, 2011
VW bets on new Passat built in U.S.
European company hopes to sell million in America by 2018
By Nick Bunkley
New York Times
New York Times
Published on Tuesday, May 31, 2011
CHATTANOOGA, TENN.: Volkswagen hopes that more seat padding and larger cup holders will help it to become competitive in the United States again and to achieve a lofty goal of becoming the world's largest carmaker this decade.
Signaling that it is more committed to the North American market than ever before, the company has designed a version of its midsize sedan, the Passat, specifically for U.S. tastes and is building it in a $1 billion plant in Tennessee rather than importing the same car sold in Europe.
The new version is bigger and significantly less expensive, with a starting price of about $20,000, roughly $7,000 less than the current model.
''Our goal is to put Volkswagen back among the very best in this key market,'' said Michael Macht, the carmaker's top manufacturing executive.
But Volkswagen's big investment will only pay off if many more people buy its cars. Only 12,497 Passats were sold in the U.S. last year, well below the model's peak of about 80,000. For the Passat to succeed, it must take on the stalwart Toyota Camry and Honda Accord, along with vastly improved offerings from Hyundai and the Detroit automakers. It also must overcome some skepticism from loyalists and critics who do not regard the revamped, cheaper model as an improvement.
Automobile Magazine, in a recent review of the 2012 Passat, said Volkswagen created ''the lowest common denominators of the American midsize sedan.''
''There's the sense that with every crease of the sheet metal, every tenth of an inch of legroom, and every penny of the
price, Volkswagen vigilantly calculated how many buyers would be won and how many buyers would be lost,'' the review said.
In February, Volkswagen drew plenty of positive attention to the new Passat, which will arrive at U.S. dealerships this year, with a popular Super Bowl commercial featuring a child dressed as the Star Wars villain Darth Vader. He reprised the role at the plant's opening, flanked by an army of storm troopers, to raise a wall exposing the plant floor to the audience at the event.
''It's a very daunting effort,'' said Jack R. Nerad, executive market analyst for the vehicle information provider Kelley Blue Book. ''If they're going to grow to the level that they want to, they're going to have to take it out of somebody else's hide. That's a tough task, because there are no weak sisters in this market.''
Still, Volkswagen executives say they are confident that annual sales in the U.S. will surpass a million vehicles by 2018, nearly triple last year's total of 360,179. The company, based in Wolfsburg, Germany, aims to become the world's largest automaker by then.
Central to those ambitions is the large investment in the U.S. Building the Chattanooga plant, Volkswagen's only factory in the U.S., and developing new versions of the Passat, Jetta and Beetle add up to $4 billion, executives said.
By manufacturing locally, and buying 85 percent of the North American Passat's parts from nearby suppliers, the company is able to greatly reduce its costs. Executives said the savings was the biggest reason Volkswagen could charge less for the Passat, even while adding standard features like dual-zone climate control and Bluetooth connectivity. Some specifications were also changed from the 2010 version — no 2011 model was built — such as dropping a turbocharged engine from the base model.
Building Passat in Tennessee reduces shipping and labor costs, but more important it keeps profits from being wiped out by unfavorable currency exchange rates. That is a big reason other foreign carmakers like Toyota and Honda build a majority of the vehicles they sell in North America at plants on the same continent.
''Currency fluctuations can really clobber a European manufacturer,'' Nerad said. ''All of a sudden your cost basis is a lot better.''
The Chattanooga plant, which employs 1,700 and builds cars for the U.S., Canada and Mexico, has a capacity of 150,000 a year. Only the Passat will be built there initially, though executives left open the possibility that other models would be added later. Martin Winterkorn, Volkswagen's global chief executive, told reporters before the plant opening that the company would decide within a year whether to build cars for its Audi luxury brand in the U.S. as well.
The opening of the plant is Volkswagen's return to building cars in the U.S. It closed a Pennsylvania plant in 1988. Frank Fischer, chief executive of the Chattanooga operations, said the new plant and the Passat would not suffer any of the problems that doomed the original plant, which was bought from Chrysler and was plagued by poor quality and labor disputes.
Unlike the Pennsylvania plant, the one in Chattanooga is not unionized. Executives declined to discuss the possibility that the United Auto Workers union might focus on the newly hired work force as it seeks to organize at least one foreign-owned auto plant this year. Sen. Lamar Alexander, R-Tenn., said during brief remarks that the plant has a ''first-rate workforce in a right-to-work state.''
Analysts said unionization could increase the plant's labor costs, which Barclays Capital estimates at $27 an hour, including benefits, for each worker — on par with those earning so-called second-tier wages in the Detroit carmakers' plants and roughly half as much as first-tier Detroit workers earn.
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