Volkswagen's American assembly plant: fahrvergnugen was not enough - international marketing

Business Horizons, Nov-Dec, 1992 by William Beaver

GETTING STARTED

Volkswagen spent approximately $250 million to get the Westmoreland plant on-line. To get started, the company needed to select a management team. For the most part, American managers were hired (drawn largely from the Big Three) and were given a great deal of autonomy in guiding operations, although the Germans would closely monitor the situation. "Our philosophy is to bend and adjust to the American system," remarked one VW official ("Myxomatosis" 1983). In fact, Wolfsburg visualized the American operation as a regional production unit. However, strategic decisions in areas such as product innovation and development would always be made in Germany.

To head its American venture, Volkswagen chose James W. McLernon as president, a former GM executive who was given much of the credit for getting the plant on-line in just 18 months. An immediate problem McLernon faced was setting up a network of parts suppliers. Volkswagen hoped to supply 60 percent of the parts domestically to make the Rabbit more cost competitive. Unfortunately, Volkswagen found the American parts often below its standards, which did nothing to improve the quality of the Rabbit and forced the company to use more German parts than originally anticipated, thus increasing costs.

Finishing the inside of the 2.5 million-square-foot Westmoreland facility represented another hurdle. The plant was completed according to Volkswagen's needs and was certainly modern by U.S. standards, but it had some inefficiencies. For instance, Volkswagen did not install the latest in automated equipment in the body shop, where the metal panels were welded together to form the car's shell. Another deficiency of the operation was that Volkswagen abandoned plans (apparently for financial reasons) to build a stamping plant at Westmoreland. Instead, the company purchased an American Motors stamping plant in West Virginia. This meant that the body panels had to be trucked four hours to Pennsylvania, incurring not only the costs of transport but also handling and damage to the panels. Both measures did allow Volkswagen to hold down start-up expenses, but in the long term they only drove up manufacturing costs.

Finally, problems were experienced with the work force. Besides the difficulty of training largely inexperienced workers to assemble automobiles, an adversarial relationship soon developed between labor and management, which resulted in several work stoppages during the first six months of operation. Workers complained about the dictatorial manner of certain supervisors and the fact that the line did not shut down during breaks (somewhat unheard of for an auto plant). But most upsetting to many workers was the wage disparity between Volkswagen workers and the Big Three. As one worker put it, "If VW thought they could pay slave wages they should have gone south" (Emishmiller and Camp 1978). The "slave wages" were between $1.00 and $1.50 per hour lower than the Big Three. To protest, a few workers staged a wildcat strike that shut down operations.