VW’s Growing Market within Mexico

Commentary by John Paul McDaris

Here are some recent sales numbers for Volkswagen, as reported in Automotive World:
• Worldwide deliveries grew 4.7% from January through November 2013
• Deliveries in North America in the period were up 6.7% overall and up by 4.3% in the US
• For VW Passenger Cars, deliveries in China in the period were up by 17.5%
• In Mexico, deliveries of VW Passenger Cars was up 15.1% during the period

Thus Mexico posted the second-highest rate of growth for the sale of VW cars during the 11-month period. So does the Mexican domestic market still sound like a backwater?

I have visited the VW plant in Puebla and it’s an incredibly impressive operation. Over 14,000 people are employed there and the assembly lines are fully automated. My main thought after seeing the facility was that there must be a huge cost savings on the labor there if VW can afford a fully automated assembly line and to employ 14,000 people.

But to focus on just the affordable labor in Mexico would be a mistake. The real reason companies like VW are here are due to Mexico’s open trading philosophies. With 44 free trade agreements, the government has signaled an intention to be competitive in every region of the world. Cars assembled at VW’s plant have no problem qualifying under NAFTA rules of origin guidelines, as substantial value is added to the vehicles within Mexico. Similarly, Mexico is an attractive destination for manufacturers eying the South American market, as free trade agreements with numerous countries on the continent help assure Mexico’s standing as a base for platform-based production.

Source: Automotive World

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