Volkswagen AG (VOW), Europe’s biggest carmaker, plans to build its best-selling Golf hatchback in Mexico in a push for market share in North America, where it trails competitors. The preferred shares hit a 20-year high.
VW will build the Golf at its factory in Puebla beginning in the first quarter of 2014, the German manufacturer said today. Golfs built at the plant will be sold in North and South America, and the production will be in addition to output of the model at VW’s home base in Wolfsburg and in Zwickau in eastern Germany, said Christoph Adomat, a spokesman.
“Volkswagen has ambitious growth plans, and localizing production is crucial for these plans to work out,” said Daniel Schwarz, a Commerzbank AG analyst in Frankfurt. “You can’t be successful in the mass-market segment if you only import cars.”
The move to produce the Golf in Puebla is part of a plan to spend $5 billion over the next three years in North America. Growth there is critical to Chief Executive Officer Martin Winterkorn’s strategy to become the world’s biggest carmaker by 2018. By shifting Golf production to Mexico, VW plans to benefit from lower labor costs and hedge against unfavorable currency fluctuations between the dollar and euro.
“With its existing infrastructure, competitive cost structures and free-trade agreements, Mexico is the ideal location to produce the Golf for the American market,” Hubert Waltl, the head of production at VW’s passenger car brand, said today in a statement.
VW preferred stock rose as much as 1 percent to 184.80 euros, the highest intraday price since at least November 1992, and was trading up 0.9 percent at 4:13 p.m. in Frankfurt. the shares have jumped 35 percent in the last 12 months, valuing the manufacturer at 82.5 billion euros ($111 billion).
Underscoring the need for growth outside its home market, VW’s sales in Europe plunged 15 percent in December, bringing the 2012 drop to 1.1 percent. The European car market is forecast to decline for a sixth straight year in 2013 because of the effects of the region’s sovereign-debt crisis.
Volkswagen, which has increased sales in countries such as China, Brazil and Russia in recent years and gained market share in Europe, lags behind General Motors Co. (GM:US) and Toyota Motor Corp. (7203) in U.S. volumes. To help catch up, VW earlier this month opened a $550 million engine factory in Silao, Mexico, to supply its two assembly plants in North America.
Fueled by demand for the U.S. version of the Passat (PSAT) mid- sized sedan, sales of Audi- and VW-brand vehicles there surged 31 percent to 580,200 cars last year, beating the previous high set in 1970, when VW’s Beetle and Microbus helped define American culture. This year, VW plans to report a profit in the U.S., its first there since 2002.
Producing the Golf in Puebla allows Volkswagen to make “further strides towards the goal of building more than 75 percent of the cars Volkswagen of America sells in the North American region,” Volkswagen’s North America chief Jonathan Browning said in the statement.
The Golf is the backbone of Volkswagen’s MQB platform, which will serve as the underpinnings for Audi, Skoda and Seat vehicles. The strategy is intended to lower production costs 20 percent by enabling faster assembly of cars with fewer components.
VW plans additional shifts at the Wolfsburg plant to meet demand for the Golf as orders for the model exceed 100,000 cars, the company said Jan. 23. The seventh generation of the Golf was first presented at the Paris auto show in September 2012.
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