VW Continues Mexican Investment, Looks to Serve U.S. Operation

Volkswagen depends on Hecho en Mexico, not just in Wolfsburg gemacht. 

For the German automaker, Mexico must deliver payback for huge bricks and mortar investments. Part of the payback also lay with the supply chain.

Thomas Karig, Vice President for Corporate Relations, Volkswagen said the automaker likes the supply chain as well as the geographic location associated with Mexico.Karig made those comments during MEXICONOW’s Supply Chain Summit in El Paso where he also spelled out conditions potential suppliers to VW must achieve.

TODAY YOU ARE TALKING ABOUT VOLKSWAGEN IN MEXICO. YOU TALK ABOUT A RACE TO BE THE NUMBER ONE AUTOMAKER. WHAT IS MEXICO’S ROLE FOR VOLKSWAGEN IN ACHIEVING THAT LEVEL?

Karig: Volkswagen Group has a very big opportunity to grow, especially in the United States because we have been a niche player for many years and we are now shooting to become a major player in this market also. In order to do so the Mexican production base is key for achieving this growth and this is the reason why Volkswagen Group has been investing heavily in Mexico. We will continue to do so in the next couple of years.

YOU TALK ABOUT THE GROWTH IN NORTH AMERICAN SALES. YOU TALK ABOUT INVESTING IN MEXICO. HOW DO YOU SEE THIS AFFECTING THE SUPPLY CHAIN THROUGHOUT NORTH AMERICA AS YOU INVEST AND AS YOU GROW?

One of the reasons to come to Mexico is that the supply chain is also very well consolidated. Major players in automotive parts supply are already there. I think the last couple of years has shown that it generates the kind of a synergy or snowball effect that as more and more companies come to Mexico it motivates others to come with them, Thomas Karig Vice President for Corporate Relations Volkswagen VW Production Line especially and very importantly also in the second- and third-tier level.

ONE POINT THAT YOU MADE DEALS WITH FREE TRADE. YOU QUICKLY NOTED FREE TRADE AS GIVING MEXICO A COMPETITIVE EDGE. YOU HAVE VERY STRONG FEELINGS ABOUT THAT.

Mexico is the only country in the world from where it can export cars to North America, South America, European Union, Japan without my products paying duties being imported into the destination countries. There’s no other country in the world that can do that. If you pursue a strategy like Volkswagen, produce only the one car, only in one location, in order to maximize economical scale and minimize investment Mexico is the best place to do that.

WHEN YOU TAKE A LOOK AT VOLKSWAGEN’S PRESENCE IN MEXICO, ONE TENDS TO THINK OF PUEBLA. WHAT CAN YOU TELL US ABOUT THE TOTAL ECONOMIC IMPACT OF VOLKSWAGEN IN MEXICO?

That’s difficult to quantify. Total sales of my company in Mexico were around $10 billion last year and $3.7 billion of purchased parts in Mexico. All the impact on service and other suppliers that support the operation, distribution of products, logistics, especially for the Puebla region, Volkswagen and its supply chain is the major economic factor. 

WITH ALL RESPECT TO PUEBLA, ANOTHER LOCATION IN MEXICO HAS GAINED STATURE WITH YOU COMPANY. IT IS THE ENGINE PLANT FOR SILAO, SEVERAL HUNDRED MILES WEST OF PUEBLA. HOW DOES VW VIEW THE COMPETITIVE IMPORTANCE OF THIS NEW ENGINE PLANT FOR VOLKSWAGEN IN MEXICO AS WELL AS FOR VOLKSWAGEN IN THE UNITED STATES?

The engine plant is part of our expansion program which requires a lot more engines locally produced to support both the Puebla and the U.S. operation in Chattanooga, Tennessee. We have been producing engines in Puebla for many years but capacity was not enough and we thought it was time to take this step we haven’t taken before in order to diversify geographically in Mexico. The Silao (State of Guanajuato) engine plant is the core of a new location that will be most probably be growing importantly in the next couple of years.

ONE THING YOU TOLD THE GATHERING IN EL PASO FOR THE SUPPLY CHAIN SUMMIT IS AUDI. YOU REMINDED THE GROUP THAT AUDI IS GOING TO BE BUILDING A NEW PLANT IN MEXICO, THE LOCATION OF WHICH HAS YET TO BE DETERMINED. WHAT MUST CANDIDATE CITIES OFFER TO BE ATTRACTIVE? WHAT ARE THE PROSPECTS FOR BORDER CITIES SUCH AS JUAREZ OR CITIES THAT ARE CLOSER TO THE U.S. BORDER AND ON TO CHATTANOOGA?

There are of course multiple factors to be taken into account, one very important one in terms of cost is logistic cost based on this other location and as the Audi plant, as the Volkswagen plant in Puebla will be producing cars that are exclusively produced in Mexico and go from here to all world markets and very importantly to Europe. Logistic costs in terms of location play a major role, which means that we will probably be looking at locations that are very well connected to the Gulf of Mexico and the Veracruz port.

WHAT ABOUT THE BORDER CITIES, TO WHAT EXTENT DO YOU SEE THOSE AS CANDIDATES?

I don’t think so because they will be opposed to what I just said. They are farther away and not really very well positioned in terms of our logistics strategy.

YOU NOTED THAT IN MEXICO YOU HAVE MORE THAN 200 TIER I SUPPLIERS? WHAT DIRECTIONS OR GUIDANCE DO YOU GIVE YOUR TIER I SUPPLIERS THAT HELPS YOU REMAIN COMPETITIVE?

First and foremost the expectation or the requirement is quality. We operate a very efficient logistics chain which means that parts arrive at the plant have to be built into the car in the next couple of minutes or hours. We have to make sure that each and every one of these parts complies with all quality standards to not interrupt the flow of production in the plant. Service level is very much related to this issue. 

The other important thing is to help us to maximize Mexican value added, not only for our Tier I suppliers, not only assembly imported parts in Mexico. This is a very complicated but a very important task in talking about long term viability.

YOU TALKED ABOUT JUST-IN-TIME. MORE RECENT REPORTS NOW QUESTION THAT APPROACH TO MANUFACTURING. WE SAW WHAT HAPPENED WITH THE EFFECTS IN JAPAN WITH THE TSUNAMI. WE SAW WHAT HAPPENED WITH THE FIRE AT A PLANT IN GERMANY.

We have to differentiate two things: Just-in-time is a way to extend your own production line toward the supplier on the basis that this company has specialized and specific capabilities to be the best alternative to make these assemblies and supply your own assembly line as an OEM. The other thing is the global network of supply where you have Tier 2, 3, 4, 5 and 6 suppliers all over the world. This has been a strategy that the whole industry has pursued for the last years. It has been very efficient in terms of cost but of course the vulnerability in terms of natural disasters and these kinds of things is unavoidable. It’s part of the business risk you have to take.

YOU TALKED ABOUT MORE THAN $3.6 BILLION DOLLARS IN PURCHASES FROM MEXICAN SUPPLIERS. IF I WERE A MEXICAN SUPPLIER AND I WANT TO GET IN BECAUSE YOU ARE POINTING TO GROWTH BEYOND THAT, WHAT DO I NEED TO BE FOCUSING UPON NOW IN ORDER TO BECOME A VW SUPPLIER?

The first thing you have to do is look us up and come to visit us. Present your product and your company and pay a lot of attention to standards and specifications that Volkswagen expects from you. We know that in many instances these standards and specifications may be above what others expect from you. It is not easy to be a supplier for Volkswagen but we always look for long-term relationships with our suppliers once they have achieved these levels of quality and service.