VW's Mexican revolution: Volkswagen bets on a new Jetta with a big investment in its Puebla, Mexico, plant

Automotive Industries, Feb, 2005 by John McCormick

Puebla is also home to several Tier 1 suppliers such as JCI, Lear and Magna, which all produce modules for the Jetta on a JIT basis right by the plant. Two supplier parks next to the plant house 25 key suppliers. Overall, VW has 272 suppliers in Mexico, many of which are subsidiaries of Tier 1 suppliers.

Labor rates at the VW Puebla plant are about $27 per day, without benefits. According to VW, that rate is comparable to other older plants in Mexico, such as those owned by General Motors and Nissan. However, newer plants have lower wages.

Though Mexican wage rates are very low by U.S. standards, they cannot hope in compete with those in China, where the daily wage amounts to around $5. That disparity has already led some companies to reconsider their Mexican strategies. Nissan boss Carlos Ghosn, for example, recently warned Mexican suppliers to become more competitive with emerging economies such as China and Thailand.

Even with the China factor, VW chairman Bernd Pischetsrieder recently said that if consumer demand increased sufficiently in North America, a U.S. plant could be considered. VW last produced cars in the U.S. in 1988 when it closed its plant in Westmoreland County, Penn., after sales of the Golf declined sharply. The Westmoreland factory produced a total of 1.2 million Rabbits and Golfs from 1978 to 1988.

A new U.S. plant would demonstrate the company's commitment in the American market, Pischetsrieder noted.