As if Detroit needed any more bad news, there are reports that yet another foreign producer of sensible, efficient and fun to drive cars is planning a raid on the domestic market share of the SUV-producing giants. Apparently Germany's Volkswagen (OTC: VLKAY) is considering building a new plant in Alabama to produce Jettas and next-generation Passat sedans, and possibly a small new SUV called the Tiguan, as well as the Audi A5. The plant will cost an estimated $788 million and employ several thousand workers. No decision was made about the plant's location at a meeting on Wednesday by Volkswagen's management board, and VW is reportedly also considering sites in Tennessee and Michigan.
This would not be the first time VW produced cars in the U.S. From 1978 to 1988, the company produced over a million vehicles, mostly Rabbits, in New Stanton, Pa., near Pittsburgh. But VW's quality and reputation suffered in the 1980s, and the company now has less than 2% of the American market. However, VW is making a great comeback across the globe, and senior managers must think the time is right to start selling more cars in the massive North American market, the world's largest.
There are two interesting parts to this story. First, the American South is slowly but surely becoming the new Detroit. Why? The answer is simple: cheaper labor and a lack of unions. New plants in the South now produce cars from Nissan, BMW, Kia and Honda. In many ways, the industrial Midwest's loss has been the South's gain.
The second notable aspect of this story is how the decline of the American automakers is creating opportunities for foreign competitors. VW is an industrial powerhouse, with a market cap of over $100 billion, and is well positioned to start selling more cars here. It is a leader in diesel technology, producing diesel engines that have a reputation for great durability. It also has a long track record of producing highly efficient vehicles, including the famous 1-liter car that gets 282 miles per gallon of fuel. (Rumor has it that VW may start producing a variant of that car in 2010.) And its cars are fun to drive.
Although VW certainly has some work to do in regaining its reputation for quality and reliability, you have to like its chances given the state of the American auto industry. The new turbo-diesel Jetta, for example, gets 50 miles per gallon, which makes it competitive with even the hallowed Toyota Prius, and quite a bit sportier. I imagine that's starting to sound pretty good to American SUV drivers facing $100 tanks of gas.
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Reader Comments (Page 1 of 1)
7-25-2008 @ 1:29PM
jpdr1100 said...
Obviously the requirements for blog posting are rather low. New Jetta TDIs don't get 50 mpg. They haven't in years since VW insists on fattening their cars every new iteration.
And even that kind of mileage ignores the fact that diesel fuel is now priced at least 25% higher than gasoline, negating most of what mileage improvement exists.
8-24-2008 @ 6:59PM
frank said...
I have allways been driving VW vehicles and would never change brands. My first vw was a 60 bug when I was in the military in Europe. This car never. never. let me down. It was a loyal companion and I allways had spending money in my pocket. I currently have 03 TDI stick and I can pass anything on the road.This car is awsome so cheap to run for a long distance on a tank of fuel