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Volkswagen extends its relationship with Mexico

A view of a Volkswagen car in the middle of a sandy beach with palm trees in the background.
23 Jan 2014

The automotive industry represents one of the most dynamic and influential manufacturing sectors in Mexico. Multinational companies from around the world have started recognizing the multitude of benefits associated with offshoring operations in Mexico. One company that has maintained a lasting relationship with the country has been the German automaker Volkswagen.

Years of investment
According to the online automotive resource, VW first began exporting vehicles to Mexico in 1954, which predates the North American Free Trade Agreement by roughly 40 years. Nearly 10 years after Volkswagen established trade with the country, the European auto-manufacturer set up production, sales and import operations within Mexico, founding the company Volkswagen de Mexico. The first manufacturing plant was set up in Puebla, a city in central Mexico which has garnered significant international interest for offshoring production and distribution. In 1967, the Puebla plant delivered the first Beetle to consumers and has since manufactured other car models, including the Jetta.

Expanding operations
More recently, Volkswagen announced it would shift production in Puebla to manufacture the Golf, which the company will export to the U.S. and Canada. With facilities in close proximity to the target market, the auto producer has an advantage over other vehicle makers that are forced to go through complicated supply chains and deal with international tax systems that can often detract from potential revenue. VW de Mexico prepared to manufacture the 7th generation Golf by renovating the Puebla plant. The $700 million project will support the company as it aims to reach a manufacturing capacity of 700 vehicles per day.

"Our Puebla factory is today one of the group's highest exporters and one of its largest plants worldwide," explained Volkswagen de Mexico CEO Andreas Hinrichs. "Over 10 m[illion] vehicles have already been shipped from here to customers all over the world."

Volkswagen's luxury brand, Audi, is also part of the carmaker's strategy in manufacturing in Mexico. According to the company's press release, the company will expand its North American production with a new plant in San Jose Chiapa, a town located close to Puebla. With greater investment in producing vehicles in the country, Volkswagen has also established goals to use the most environmentally-friendly standards possible to manufacture its automobiles.

The market share that Volkswagen has developed by offshoring in Mexico is difficult to ignore and can serve as a prime example of the potential benefits to moving operations to the region.

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