Volkswagen Announcement in July Will Be a Bright Spot in an Otherwise Gloomy Automotive Mont

Implications: Volkswagen recognizes they have to produce in the US to growth the US market share. The same formula has worked for the other German, Japanese, and Korean transplants. Expect the factory to be flexible enough to produce both Volkswagen and Audi products, since they share platform and powertrain components. Also, expect the factory to be positioned as an export center for VW and Audi products produced with US components with a US dollar basis.

Analysis: Volkswagen is surely going to provide a bright spot to an otherwise gloomy July for the US auto industry. Volkswagen is scheduled to announce the intent and location of a Volkswagen production facility prior to the 3 week summer shutdown in Germany. Three states and locations are in the final running - Michigan, Chattanooga, TN, and Alabama. My money is on a location in the Huntsville, Alabama area.

Volkswagen must follow the formula that has been proven out by Toyota, Honda, Nissan, Mercedes, and BMW, and that is to be a serious player in terms of sales and volume in the US, you have to produce in the US. Also, with the weak dollar and strong Euro, Yen, and strengthening Yuan, it also makes sense to have a US factory, with North and Central American sourced components, producing vehicles for the world market. 

With the announcement of this factory, should also come the announcement of intentions for a powertrain and stamping facilities. Each of these will prove to be quite an economic catch for another community in the US or Mexico. There should also be the expectation that the factory will have the flexibility and capacity to support both Volkswagen and Audi production. Since the Toureg / Q7, Tiguan /Q5, and Passat / A4 all share platforms and powertrains, it is very probable to see the factory producing complete vehicles, or at the least, vehicle assemblies for both models. Expect to see a sedan as a first model followed by a small SUV.

In addition, there should be enough people left at Volkswagen to understand what went wrong with their first US manufacturing venture in Pennsylvania. Hopefully, Volkswagen will recognize that the factory culture that has been perpetuated with the Audi Production System (APS) is a much more conducive business model to production success in the US. If they are wise, the factory will launch with this concept.

This July 4th will provide Michigan, Tennessee, or Alabama with another reason to celebrate in the form of a new German corporate resident.