$1B Bet Fuels Volkswagen’s Ger-Mexican Identity Crisis

Source: Volkswagen de México

South of the border, things are really starting to heat up for the company that has brought “Das Auto” to the American mainstream for more than half a century. A recent report by Automotive News claims that the Volkswagen plant in Puebla, Mexico, is slated to receive a $1 billion investment to shore up its production of the Tiguan crossover, among other things.

This is huge news for the auto manufacturer, since the Volkswagen plant in Puebla already is the largest automobile factory in Mexico, producing an astounding 516,000 cars in 2013 alone, according to its website.

With American sales lagging severely, the German-based manufacturer is eager to reclaim its portion of the U.S. market from the assortment of Asian auto manufacturers who have gobbled up a healthy slice of the American market since the early 1990s. This fact was hammered home recently when sources stated that “the next-generation Tiguan is a key part of VW’s plan to lift its U.S. sales with a broader SUV and crossover lineup.”

Source: Volkswagen de México

But is this massive investment really going to boost VW sales to the point where they can reclaim their portion of the American market? Will the already over-saturated SUV market want Volkswagen’s latest offering? And how do Americans feel about this massive investment going to Mexico instead of the Chattanooga, Tenn., plant?

These issues are just the tip of the iceberg. Perhaps the best way to begin is to step back and look at the big picture with a pair of binoculars, because developments this big are still just materializing on the horizon.

Source: Volkswagen

Let’s start on a high note by touching on some of the pros associated with this massive financial gamble and the Puebla production facility. A recent report by ABC News claims that there will be around 2,000 new jobs created when the dust settles and the plant’s expansion is complete.

According to Automotive News, an all-new Tiguan will then be “redesigned in 2017 and a long-wheelbase version, with three rows of seats, will be sold in the U.S. market.” Volkswagen says that this expansion will leave ample room for the continued production of cars like the Beetle and the Jetta for the U.S. market, even during the construction phase.

But there are two sides to every coin, and as soon as news of the developments were announced earlier this month, grievances and accusations began to run rampant across the backbone of the Internet. Perhaps the most obvious objection was why was there such a massive investment in Puebla, Mexico, and not the Chattanooga plant. According to the Volkswagen Group of North America, the Chattanooga assembly plant is home to 3,200 VW employees and more than 9,500 supplier employees.

It is expected to produce about $1.4 billion in tax revenues alone and create over $12 billion in income growth for the state of Tennessee. At the end of the day, critics are primarily upset that these 2,000 new jobs will not be available to Americans, thus further hurting the job market and economy as a whole because Volkswagen has opted to bolster the Mexico plant instead.

But after delving a little deeper we have discovered that Volkswagen has opted for an increase in production at the Puebla plant for a variety of justifiable reasons. Yes, a newly designed Tiguan is still at the forefront, but standing behind it are a few other indisputable components: the Chattanooga plant has received its own hefty $1 billion investment in recent years, and the Tennessee plant is still reeling from a prolonged labor dispute which has brought little but negative attention to Volkswagen’s American operations in recent years.

Information like this can play a crucial role in swaying a company’s decision to outsource a product, and Volkswagen is no different as it opts to put its money elsewhere to keep both costs and negative press to a minimum.

Source: Volkswagen de México

The final area of contention lies in the fact that many Americans are still inclined to purchase vehicles that are made in America, regardless of whether they are labeled as an “import.” Naturally, the country where the “import” originates will always take precedence when legitimacy is at stake, but that goes without saying. Meanwhile, back on the Volkswagen car lot, the American consumer is faced with an interesting quandary.

Mexican-made Volkswagens have an obvious identity crisis, and this is cause for concern among many consumers, especially when they are confronted with something like the all-new $30,000 Tiguan. With its German conception, Mexican birth certificate, and American adoption papers sitting on the table in front of them, buyers must surely be wondering if there is such a thing as a “purebred” anymore.

All of this has led us full circle, and we can now focus on the big picture. Volkswagen’s American sales numbers are down. They are getting creamed by the competition and they need a solid foothold in order to give themselves a leg up.

Maybe then they can leverage their Germanic offerings all the more. But with a diminishing level of customer traction, high European maintenance costs regardless of being made in North America, and a new Mexican branch in the family tree, the Volkswagen slogan might be in need of an update, and become “El Coche” for the time being.

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