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VW need to balance production in North America, to meet the Trumps big tax threats

Volkswagen facing problem after problem in U.S. market. After acceptance to pay more than $23 billion to cover its diesel-cheating scandal, the German car maker is facing the president Donald Trumps proposed border tax in amount of 35%, due to the biggest production on the continent is in Mexico, while in U.S. is limited.

Nevertheless, VW is preparing for the comeback on the U.S. market, and in this plans they are leaning to its factory in Chattanooga, Tennessee. Beside the production of Atlas SUV in this plant, $900 million expansion is ongoing and the big part of it is also Passat. “Volkswagen Group has been a part of the American culture for six decades,” said Jeannine Ginivan, a spokeswoman for the company’s U.S. unit. She declined to comment on the potential impact of import taxes. “We look forward to working with the new administration and Congress as we seek to grow our presence in the U.S. market.”

The VW’s expansion strategy is focused on building a range of SUVs

The automaker’s expansion strategy is focused on building a range of SUVs, which will involve delegating more decision-making closer to American consumers. The goal is to end decades of futility attributed to having run U.S. operations primarily out of Germany.

“Volkswagen needs to spend a lot of time in the U.S., and they need to regain the U.S. consumer,” said Arndt Ellinghorst, the head of automotive research at Evercore ISI. “The incremental investment for Volkswagen will probably come in the U.S.,” he concluded for Bloomberg regardless of the Trump effect. Much of Volkswagen’s North American output comes from its sprawling Puebla plant in central Mexico, opened in the 1960s. Plant has capacity to build about 600,000 Jettas, Golfs and Beetles a year.

However, rivals of the German producer are better positioned when we are talking about the bringing back production in U.S.  Nissan Motor Co., last year produced 850,000 vehicles in Mexico, but also have built 1 million vehicles at its four U.S. factories. BMW AG and Daimler AG both have sizable operations in the U.S.  Daimler owns Freightliner trucks and produces Mercedes-Benz cars in Alabama, while BMW’s largest factory worldwide is in South Carolina.

 

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