Audi goes premium with Q5 build in Mexico

By Michael Hissam

Sales increases of 32 percent in Mexico and 14 percent in the United States in the first three quarters of 2013 seem to support the Audi decision to invest more than $1 billion in Mexico to build the premium Q5 SUV.

Matthias Müller, CEO, Audi Mexico, quickly added that existing rail, access roads into two major highways, a supplier network and “fantastic” free trade agreements giving a “strategic position” made Audi decide to become the so-called new-kid-on-the-block when it comes to auto build in Mexico:

You’re talking about a strategic position. What will your location be in Puebla, and to what extent is this project a green field approach?

Absolutely, it’s a green field approach. We chose San José Chiapa as a location in the state of Puebla. We did so because the infrastructure is already there. We have a close relationship with the Volkswagen Company. They offer many benefits on this issue.

What can you tell us about the investment that Audi is making at this new location?

The whole investment is about one billion Euros or $1.4 billion U.S. 

You’re betting a lot on success in Mexico?

Absolutely. We are a global player. We need to expand our business in the U.S. and we will distribute the Q5 from Mexico to all over the world.

Tell us about the Q5, its market and where the Q5 had been before.

The Q5 was produced or is produced in Germany -- in Ingolstadt right now. And the Q5 is the mid-size SUV in our SUV line with Q7 and Q3. It is already the second or third successful model in the Audi portfolio.

What is the timetable for that first Audi to roll off that assembly line?

As soon as production will start in 2016. Now we are really going up to build this plant.

You are going up to build these plants. You need a staff. You need employees; that’s going to happen. Where are you now with that and what are the target numbers for the start?

We started to hire people in the first half of the year. At the end of 2013 we have 200 people. At the end of 2014 we will have 1,000 employees. The long term goal will be a number close to 4,000 employees.

To what extent are these management employees? What about the production line employees?

We started to hire the experts in the managing positions right now because this is really what we need. In the middle of 2014 we will start to hire blue-collar employees.

You’re pointing out that this is more than a $1 billion investment in Mexico. A term you have used is “deep localization.” What do those words mean?

Deep localization means that we need to produce locally or to use locally manufactured products, not only with a sticker of Made in Mexico, we need deep localization and therefore we have a strategic goal of 90 percent.

That 90 percent means literally hundreds of millions of components a year for what you reported as a projected run rate of 150,000. To what extent are you saying Mexico -- if it plays it right, if the suppliers are right -- has a huge opportunity for components or systems?

Absolutely, and we not only will produce the car here in Mexico and distribute to the world, we will have to supply the CKD in China as well, which is nearly double the numbers.

CKD represents a completely knocked down vehicle, correct?

Exactly

They assemble?

Absolutely

Will some of that componentry be coming from Mexico?

Sure

You’re telling people in Puebla, at this auto industry summit, the Q5 will be the first premium car from Mexico. What does that mean in terms of a challenge for Hecho en Mexico?

The whole supplier network needs to understand what makes a premium car. This is our philosophy. It is the right car, at the right time, a premium level of quality to meet our exacting standards, at the best price, in the right place.

Customers are ever more demanding. You’re already setting up a high expectation level. What about what you term “perfection?” To what extent is there a question that can be asked about it?

I’m sure about the Made by Audi. This is our philosophy. That means we get the high quality level where ever we produce. The key word is “Made” by Audi.

We’re taking a look at a relationship with Volkswagen, a partnership with Volkswagen. How important will that be to the development and a successful start for you in the state of Puebla?

Volkswagen has been here now for 50 years. We have to base on the expertise and knowledge which our colleagues with Volkswagen already have. Therefore we can find a lot of synergies.

You’re talking 2016 for the official production start. Let’s project down the road. If we fast forward to 2026, what are we going to see from Audi in Mexico?

I’m sure we will have more products than the Q5 here in Mexico. We are already discussing a lot of opportunities. We really count on this market.