VW to expand Mexico operations

Financial Times (UK) - February 12, 2002

Volkswagen has committed itself to expanding operations in Mexico and using the country as a platform for exporting its vehicles to the US, Vicente Fox, the Mexican president, announced yesterday.

After a two-week strike last year, company officials had said VW was rethinking its US$1.5bn investment plans for Mexico. They also demanded changes in Mexico's labour code, under which they had granted wage increases that far outstripped inflation.

Volkswagen de Mexico vice president Francisco Bada Sanz said that they have targeted output this year of 365,000 to 380,000 units. He went on to say that VW de Mexico is also considering a reduction in its annual working calendar of 284 days through changes to its shift system, but without any shut-downs as occurred last year.

During the state visit on February 11th of Gerhard Schroeder, the German chancellor, however, the company agreed to increase investment over the next decade in Mexico, currently the world's ninth-largest producer of vehicles. Mr Schroeder was accompanied by Germany's Economy Minister, Werner Mueller, the head of the German Confederation of Industry and top executives of several leading German firms, including the engineering giant Siemens, energy producer RWE, and executives of Volkswagen AG.

President Fox said that VW hoped to use Mexico, which has a series of free trade agreements with the US and the EU as well as with several South American countries, as a base for exports throughout North and South America.

VW will also begin to generate its own electricity with German company RWE, Mr Fox added. As foreign investment in Mexico's energy sector is traditionally tightly controlled, this would be a notable concession by the government.

Volkswagen is the most important vehicle manufacturer in Mexico, where most taxis are Beetles or Jettas.

The company manufactured 1.8m vehicles in Mexico last year, about a quarter of the nation's total production. It sold 165,000 units, exporting 95 per cent of them to the US.

During his visit, Mr Schroeder encouraged Mexico to increase its ties with European companies, to lessen its "dependence on the United States".

He expressed the hope that other European companies would look to Mexico as a launching pad to markets in Latin America and the US. VW has cut some 2,000 jobs in Mexico so far this year.

sent in by Pete Fros