By Christina Rogers, Automotive News
Detroit, Michigan -- Volkswagen Group has settled on Mexico to build a new North American factory for its premium Audi brand.
The Audi supervisory board today decided in favour of Mexico over a site next to VW Group's existing US factory in Chattanooga, Tennessee, which opened last year to build the VW Passat.
"As an established car-making location, Mexico offers an excellent economic basis for Audi production operations," Audi ceo Rupert Stadler said in a statement issued after the board meeting.
The Mexico plant will provide a boost to the VW Group's sales prospects and manufacturing operations in North America, where its light vehicle output rose 25 percent in 2011 to a record 542 363 units.
It will also relieve supply constraints that executives say have limited Audi's U.S. growth. The brand posted a 16 percent sales gain last year to a record 117 561.
Audi said it will build an SUV at the factory starting in 2016. A site for the plant will be selected later this year, the statement said.
Audi, which sells about half as many cars in the United States as BMW and Daimler's Mercedes-Benz, is looking to catch up with its German rivals in North America.
Mercedes and BMW have factories in the US, where they build mostly crossovers and SUVs.
The decision appears to be a win for Stadler, who, according to Automobilwoche, a sister publication to Automotive News Europe, had been pushing for Mexico over the US.
Executives at the parent company had preferred the US site because of its proximity to existing suppliers and the marketing benefits of the "Made in the USA" label.
But Mexico has its advantages too.
By locating production there, VW will avoid a 10 percent duty levied on cars that are built in the US and shipped to Europe. Also, the brand is better positioned for export to South America, where it sees Brazil as a promising market.
The VW group already builds the VW Jetta and Beetle at its Puebla, Mexico, factory about 80 miles southeast of Mexico City. It plans to open an engine factory next year in Silao, Mexico, a centrally located city in the north, to build 300,000 engines a year for North America.
"Good infrastructure, competitive cost structures and existing free trade agreements played a significant role in the choice of Mexico," Stadler said.
Audi's North American factory is crucial to VW Group's aggressive push to surpass General Motors as the world's leading automaker. By 2018, it wants sell 10 million vehicles globally a year -- up from the 8.3 million it sold worldwide last year.
In the US, it has equally ambitious goals: it aims to sell 1 million vehicles a year here by 2018, including 200 000 Audis annually.
VW Group of America sold 443 840 vehicles in the US last year, up 23 percent over 2010. Sales during the first three months of 2012 have climbed 34 percent to 124 293 vehicles.
Bloomberg contributed to this report
You can reach Christina Rogers at [email protected]