Week of January 27, 2003
  Blockbuster Deal
   from Site Selection's exclusive New Plant database
Capital Seeks to Squash 'Lovebug' Taxis
Puebla, Mexico
BIG PLANT MAKES BIGGER TOWN: Once a sleepy Mexican village, Puebla (pictured) is now a budding metro, its growth jumpstarted by the arrival of VW's 16,000-employee plant in 1967.
VW Spending $2B, Adding 1,500 Workers, New Line
at Mexican Plant

by JACK LYNE, Site Selection
Executive Editor of Interactive Publishing
PUEBLA, MexicoVolkswagen (VW at www.vw.com) is adding 1,500 workers in Puebla, Mexico (www.puebla.net.mx), moving its massive manufacturing plant there farther from its "Old Beetle" roots and closer to the new Bora.
        As part of its drive to boost sagging sales, VW is adding a new production line at the Puebla plant to make a brand-new mid-sized Bora sedan. But the Bora is only part of the expansion picture in Puebla. The German automaker plans to add 1,500 new employees in investing US$2 billion in the Puebla plant between 2003 and 2007, Volkswagen Mexico President Reinhard Jung announced.
        VW, Jung explained, will spend $180 million of its projected $2-billion investment in adding the new Bora line. Bora production will begin in 2005, with the Puebla plant scheduled to make 100,000 of the vehicles, he said.
        The Puebla operation will be the only VW plant manufacturing the new Bora, Jung added. The made-only-in-Mexico Boras are being produced for export to the European market, he said.

Bora Part of VW's More Upscale Move
Lovebug taxis troll the Mexican capital's streets.
LITTLE GREEN MACHINES: Mexico City is trying to phase out the 70,000 Lovebug taxis, painted a distinctive vivid green, that troll the Mexican capital's streets.
The Puebla plant's new product comes as VW labors to jumpstart ragged-running sales. Its 4.98 million vehicles sold in 2002 represented a 1.9 percent drop from VW's 2001 worldwide sales. The Bora is one of a number of more upscale models that the company is introducing in trying to boost its fortunes.
        "The key thing is the fastest-growing segments are the ones we are going into," VW Chief Executive Bernd Pischetsrieder said on Jan. 6 at the Detroit Auto Show. "Our objective is to have a 5 [-percent sales increase] at the front of our 2003 sales figures despite a flat market."
        Coincidentally, the shift to the new-model Bora addition comes as the Old Beetle – the Puebla plant's original product at its 1967 opening – is under siege in Mexico's capital. While growing safety concerns drove the Old Beetle from the U.S. market in 1979, it never went out of style in Mexico – particularly with the nation's taxi drivers. Mexico City, however, wants to stamp out the "Lovebug" taxi brigade swarming through its streets.

Product Innovation Common in Latin Plants

Other than the Bora introduction, however, VW officials haven't yet disclosed other specifics on exactly how the $2 billion will be invested in Puebla.
        Unquestionably, though, the automaker has prodigious infrastructure in place in Puebla, located 60 miles (96 kilometers) east of Mexico City. Located on a 740-acre (296-ha.) site, the plant already employs 16,000 workers and on average turns out 1,000-plus new cars a day. Making Puebla VW's exclusive Bora manufacturer is also not a new experience for the sprawling plant. Puebla has served before as a new product's first production platform – a strategy not uncommon in Latin American auto-production facilities, owing to their inordinately high flexibility.
        The Puebla plant in 1998 became VW's first – and is still the only -production facility making the New Beetle, exporting it to 80 countries. Similarly, many other automakers have introduced new lines from their Mexican plants. DaimlerChrysler, for example, debuted PT Cruiser production in Mexico, just as General Motors is doing with a similar hybrid vehicle, the Pontiac Aztek. Latin American plants' greater flexibility is what's prompting automakers to initiate innovation there, particularly for low-volume, niche lines. Latin plants, industry analysts say, can more rapidly adapt to new lines, given their lower reliance on technology and their less contentious labor relations. Said Ron Harbour, president of manufacturing consultant Harbour & Associates, "Manual plants are the ultimate in flexible plants."

Labor Costs, EU Free Trade
Also Favor Puebla Location

Labor costs, too, are an obvious positive for VW in making the Bora in Puebla. Mexican autoworkers on average make around $3 an hour in wages and benefits. The comparable figure for U.S. autoworkers is $43 an hour.
        Puebla workers, however, struck in 1999 and 2000. The second strike lasted 15 days. That meant that $25 million worth of vehicles weren't made each day – a total product shortfall of some $375 million.
        For the moment, though, the Puebla labor situation looks stable following the 14 percent pay and benefit raise that ended the 2000 strike. And even with comparatively low wages, Mexico's autoworkers are staying a bit ahead of the local economic game. From 1994 to 2000, for example, Mexican autoworkers' accumulated wage increases were 24 percent higher than national inflation.
        In addition to its labor-cost advantage, the Puebla plant also advantageously positions VW to export to Europe. Due to the 2000 EU-Mexico Free-Trade Agreement, the automaker can import Mexican-make autos duty-free into the European Union.
Vochomania magazine logo
'BEETLEMANIA' LIVES: The Old Beetle continues to be so popular in Mexico that a national magazine, Vochomania (pictured) is solely focused on the car, and even has a "Beetle of the Month" centerfold.

Mexico City's Non-Love
for the Lovebug

More uncertain with the Bora's introduction is the fate of the Old Beetle. The Puebla plant is the only one in the world still making the history-steeped Lovebug, daily turning out some 100 of the old-style Beetles.
        The Mexican market has devoured that output. Auto analysts estimate that more than 1.1 million old-style Beetles are still running on Mexico's roads – almost one of every eight passenger cars in the entire country. Mexican consumers revere the autos' low price and durability. There's even a slick Mexican magazine, Vochomaina (vocho is the Spanish word for bug), that's solely focused on the car so common on Mexican roads.
        Mexico City, though, wants Old Beetle taxis off its roads. Painted a distinctive vivid green, some 70,000 Lovebug taxis troll the streets of the Mexican capital.
        City government wants them gone. They're fouling Mexico City's notoriously dicey air, and crooked cabbies are using them as a low-price tool for burglary and kidnapping, city officials say.
        There's more than a little truth in that, most observers agree.
        The alternative for many Lovebug taxi drivers, though, is problematic. Officials are offering taxi drivers hard-to-come-by bank loans, but interest rates are 20 percent. Moreover, many drivers remain fiercely loyal to their sometime-ancient Old Beetle taxis.
        Eradicating Mexico City's Lovebug taxis, in short, promises to be a far tougher road to travel than changing the Puebla plant's product mix.

bd0127bbd0127b ©2003 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.