Foreign Carmakers Plan U.S. Factories

The dollar's weakness lures companies such as VW and Audi to set up non-union plants that will economically make cars for the U.S. market

by David Kiley

European automakers, predicting the U.S. dollar will stay weak for several years, are getting more serious about ramping up manufacturing in the U.S.

At the North American International Auto Show (BusinessWeek.com, 1/10/08) this week, Volvo, Audi, and Volkswagen all discussed the imperative of building cars in North America, as did new plug-in hybrid company Fisker Automotive.

VW Scouts Factory Sites

By far the boldest plans are from Volkswagen (VLKAY). The German company, whose sales and profits in the U.S. have been skidding for almost four years, has an audacious plan to sell annually 800,000 VW-branded vehicles in the U.S. by 2018, more than three times today's sales levels.

"We can't really think about achieving that without a significant plant in the U.S.," said . In Detroit this week Jacoby talked about the need for VW to sell cars in the U.S. that are designed for American tastes, not just export German VWs designed for German consumers. "We are waking up to the fact that to be a global player, you have to design cars for the markets in which you sell, not just hope what you do in your home market catches on," says Jacoby.

A search committee for Volkswagen, says industry sources, has been scouting North Carolina, South Carolina, Alabama, and Kentucky for sites to locate a plant that would likely build multiple vehicles priced under $30,000—probably the Jetta or a replacement for the entry-level sedan, a similar-size crossover sport utility, and a third model designed off the same engineering platform. VW, which has lost an average of about $1 billion a year in the U.S. in the last two years, benefits most by building its lower-profit-margin vehicles in the market in which they will be sold.

Typically an automaker needs to count on building 200,000 vehicles a year in a factory to make it cost effective. A plant that size might employ between 2,000 and 2,500 workers, not including the jobs going to companies that supply a plant.

VW's sister company under Volkswagen (VOW), Audi (NSUG), also has eyes on increased U.S. sales and is building its own facility in the U.S. The proposition is more complicated for Audi. Audi CEO Rupert Stadler says Audi may have to have its own manufacturing facility in the U.S. as it pursues a goal of 200,000 sales per year because, unlike in past years, Audi and VW are building fewer vehicles off common engineering platforms. "The U.S. is a crucial market for us, but the business case for manufacturing in North America is difficult but necessary," says Stadler. Audi would likely build its A4 line in North America, in addition to at least one small SUV.