As part of its $33 billion multiyear worldwide expansion effort, Volkswagen AG has dedicated $1 billion to modernize its Puebla, Mexico, plant. The overhaul will cost as much as the plant did when VW declared it its North American production base in the late 1980s. Now, more than a decade later, the German automaker is refurbishing the plant to bring it up to the challenge of supplying a burgeoning US market.
Puebla already provides four models for the North American market. But in the past two years, VW sales have more than doubled in North America. As part of the new investment, Puebla will add a fifth vehicle. VW plans to build a Cabrio version of the New Beetle, and it also has displayed an RSi New Beetle featuring all-wheel drive, a twin-turbo V-6 engine and new body styling. Puebla also would be the logical place to produce the full-sized pickup that VW AG Chairman Ferdinand Piech wants.
But most of the Mexican plant's $1 billion overhaul cost will go into reworking the complex with new tooling to increase productivity - mostly by adding automation - and improving quality.
A lot of upkeep can be had for $1 billion. Honda Motor Co., by comparison, will spend $440 million to build an assembly plant in Lincoln, Alabama, that will supply 100,000 Odyssey minivans a year, their engines, body stampings and injection-molded parts.
Volkswagen officials say a plant as large as the Puebla factory - which last year turned out more than 410,000 cars - requires more funds to keep pace with 'modern demands for quality and production improvement.' The company spent $1.5 billion on Puebla in the past five years. 'In the past, we had far less automation,' says Volkswagen de Mexico spokesman Thomas Karig. 'And now Volkswagen is standardizing its plants worldwide.'
Puebla produces almost all the components for its cars, including about 560,000 water-cooled and 48,500 air-cooled engines a year. One exception is transmissions. Those come from VW plants in Germany or Argentina. Some convertible specialty parts come from Karmann. Most parts are sourced within Mexico, such as castings coming from a plant in Saltillo, while steel usually comes from Germany.
The plant's push for quality is not to be underestimated. Volkswagen's quality has long been a major concern in the United States. Many buyers considered the vehicles manufactured in VW's now-closed Westmoreland, Philadelphia, production complex to be inferior. Quality didn't improve much when production was first moved to Puebla.
But VW made it a priority in 1992, firing Puebla's entire 14,000-employee work force and starting fresh with newly trained workers.
Although most product engineering is done in Germany for mainstream products, Puebla has the lead on engineering both the old and the New Beetle, since it is the sole source of both models. The plant has an engineering group on site.
With demand for VW brand products rising in the USA, the plant now counts the Mexican market as a secondary pursuit. Before VW began shifting its North American base to Puebla in 1988, the small old plant served Latin American markets. As recently as 10 years ago, 80 percent of its production was sold in Mexico. Last year Puebla shipped 80 percent of its growing output to the United States alone.
The New Beetle's $20,000 price is too costly for the Mexican market, and so Puebla remains the only plant that produces the original air-cooled VW bug. Mexicans continue to revere classic Beetles for their reasonable price (currently around $7,000) and their ease of repair