Volkswagen Vows to Stay in Mexico Despite US Tariff Uncertainty

Volkswagen says it will not relocate its vehicle production from Mexico despite potential US tariffs on imported cars. The company is developing contingency plans but considers an immediate shift of production to the United States to be unrealistic.

The United States government recently imposed a 25% tariff on automobile imports from Mexico. However, Volkswagen and other automakers were granted a one-month exemption due to compliance with the USMCA rules of origin. 

"For now, we are monitoring the situation and making long-term contingency plans," says Thomas Schäfer, CEO, Volkswagen. He also emphasized that increasing production at its Chattanooga, Tennessee, plant would require more time. David Powels, CFO, Volkswagen, says that the company had not moved any vehicles across the border in anticipation of the tariffs.

Oliver Blume, CEO, Volkswagen Group, highlights that the North American automotive industry is highly integrated across Mexico, Canada, and the United States, making an abrupt relocation impractical. 

In addition to tariff concerns, Volkswagen is implementing a cost-cutting strategy to improve operational margins. The company aims to increase its margin to 6.5% by 2029 from the current 2.9%. This includes workforce reductions and operational efficiency improvements.

According to Powels, Volkswagen has reduced its workforce by 4,200 employees, with 40% of the cuts affecting production and 35% administration. Additionally, the company has eliminated some night shifts to lower factory expenses.

Volkswagen’s decision contrasts with other automakers operating in Mexico. Mazda has expressed concerns over investment uncertainty, while General Motors indicated that it may reconsider production locations depending on the outcome of negotiations with the incoming Mexican administration. Nissan has also warned that a 25% tariff could force it to reevaluate its manufacturing footprint in the country.