Andreas Hinrichs
Volkswagen de México
View from the Top

Adapting Core Strategies within a Dynamic Sector

Tue, 09/01/2015 - 11:40

Q: What new technologies and processes is Volkswagen bringing to Puebla with its US$1 billion investment?

A: Our new development stage started in 2014 with the production of the new Volkswagen Golf. This new generation is built with the new Modular Transverse Matrix (MQB) platform, which is a really important step because Golf 7 is the main product and the most successful car for the Volkswagen Group. There have been times when the Volkswagen Jetta has surpassed the Golf, but when you talk about Volkswagen’s most successful car, people naturally think about the Golf. This is very similar to how the Volkswagen Beetle was perceived in the past. That is why it was imperative to bring this production to Mexico, and we have been really pleased with its development. Golf 7 received the Car of the Year award in the US, which shows the safety and performance of the vehicle, and also our competence development. We launched the Golf 7 and the GTI version in 2014, and we are now planning to release the Jetta GP. In terms of the MQB platform, we are changing our design completely. We are using the newest segment of the plant for this model, and we are building another segment for the production of the new Volkswagen Tiguan. Additionally, having both sides of the plant adapted to the new platform will help to introduce any other product based on MQB, with much lower investments. That way, we are totally oriented toward the strategies that Volkswagen implements in Europe and China. We are in a preparation phase and our production volumes will remain stable until we start the production of the Tiguan.

Q: Given that part of Volkswagen’s new investment will be directed toward developing a stronger supply chain, what challenges are you expecting to face?

A: We have a 50-year history in the country and we have several suppliers that have been with us since the beginning. However, we are now starting the implementation of our new platform, and we are expanding our existing supplier network. Silao is also starting production of a new generation of engines, using components from companies that will be part of Audi’s supply chain as well. In general, our infrastructure is developing quite well, which will give us the chance to grow faster than other companies in the future. For our new production, we are planning to reach a local content level of 90%. Many German and other European companies are coming to assist us, and we might need one or two more years to reach this goal. Nevertheless, it is one of our priorities and a key factor for this project’s success.

Q: Volkswagen’s expansion is expected to generate 2,000 new jobs in the region. How are you planning to attract the necessary talent, considering that new competitors are entering the market at the same time?

A: We are concentrating our business in Puebla, where, fortunately, Audi and Volkswagen are the only OEMs in the region. Queretaro and Guanajuato are attracting a lot of new business, but Puebla remains stable. Nevertheless, it is an important issue for us, and we have developed strong relationships with several universities in the state in order to direct educational programs toward our technical and manufacturing needs. Additionally, we are implementing the same dual education system we use in Germany, and we have discovered that it is the best method to pass on the right knowledge to our employees. To continue improving, we need well-trained workers with the proper skills, and we must invest in their continuous development. In terms of the people working directly on the floor, we need to make sure they understand the new technology we are using, as well as every component and tool they must use to manufacture the high-quality products and engines we require. We are supported by the Volkswagen Institute, which does most of the training. There needs to be an independent entity that takes care of this process, because if it is coordinated by internal managers and operators, training and development aspects can fall by the wayside as normal day-to-day business is prioritized.

We offer competitive salaries at Volkswagen de Mexico, and in many cases they are well over the salaries offered for similar positions in other companies. Additionally, we have proper insurance, in-house doctors to attend all our employees, as well as many other benefits. This dedication has made our workers realize they are getting more than just a large paycheck. There are also several development opportunities and different paths to choose for a technical career. Our workers can become specialists, and then move on to a coordinator position or train other specialists. People do not want to remain in the same position forever, so they are more attracted to the idea of having growth opportunities.

Q: What are Volkswagen’s plans for the fast growing SUV segment in Mexico?

A: The growth of the SUV segment is a global phenomenon, and in Mexico the SUV A and A0 segments are really strong. In the past, we also had a large market for MultiPurpose Vehicles (MPVs) in the US, but now the customers have moved toward C- and D-SUVs. People are changing, so we need to do more to address the needs of our clients in this segment.

Because of our international approach, all our new platforms and engines are designed in our headquarters. Nevertheless, the rest of the car is designed locally, and our product development division currently has 800 permanent employees and 300 temporary ones to work on those projects. For the Tiguan we are following a different process, given that Europeans like smaller cars than those we normally market in Mexico and the US. For that reason, we are in charge of making all the necessary adaptations to the original design. We had the same situation with the Volkswagen Touareg. Technically, it is a perfect car and its design is really attractive, but for Mexico and the US it is too small. Customers expect a larger car for something of that price, and the streets are designed to receive vehicles of a much larger size. Therefore, we are currently working in Chatanooga on a model even larger than the Touareg. For high-end brands this is not a problem, since their cars are centered on image and status, but for volume companies it is really important to meet the various size requirements of the market.

Q: How is Volkswagen managing its brand image to attract more clients in Mexico?

A: Almost everybody in Mexico recognizes the brand. Usually, the first thought our Mexican clients have regarding Volkswagen is that of the Vocho, especially since it represented the reality of the market for many years. As a result, our strategies in Mexico and the US are completely different, considering that our market share in the US is approximately 2% or 3% and not everyone knows our vehicles. Our image has evolved in accordance with the Mexican market, and all our models are leaders in their segment including the Volkswagen Beetle, with a 70% to 80% market share in its small segment. We are seeing a change in our clients’ mindset, which is now more centered on safety features, fuel efficiency, and equipment; they are no longer only predominantly looking for low price.

Q: In terms of Volkswagen’s Think Blue. strategy, the company has a goal to reduce its waste and CO2 emissions by at least 25% by 2018. How much progress have you made toward this objective?

A: We have worked for three years on a complete strategy involving electricity, water, and gas consumption. We expect to reduce our power and water consumption by more than 25% by 2018, reaching 30% or 40% in some cases. Reducing our natural gas consumption might be a little more difficult, but starting in 2016 we will source 70% of our energy from our own wind farm, which is a far better result than our colleagues in Europe are achieving at the moment.

In terms of our products, we are looking into electric vehicles, but we only see a significant opportunity in really large cities. For the rest of the market, hybrid cars will be the best option given that they will still have an engine to support the electric motor. However, we are waiting for the right infrastructure to implement this solution. It will not be developed fast, and it involves a huge investment, but change will surely come. We are already producing some hybrid engines locally, and our new Tiguan production will include a hybrid version as well. Electric vehicles are more complicated since they require a large investment, so we are only manufacturing them in Germany. If we could lower the production costs to equal those of combustion engine vehicles, it could make sense to bring that kind of production to Mexico, but currently that is not possible.

Q: What are Volkswagen’s priorities for 2015?

A: We are focusing on preparing the plant for its new production, we are building a completely new body-shop with enough flexibility to include other products, and we are analyzing which other cars could be successful in the Mexican and US markets. We are also working on our costreduction efficiency plan, for which we are already making progress toward our 2015 goals, as well as establishing the strategy for 2016.