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Saturday, November 26, 2022

Billions in investment: this is how VW wants to finally get out of its place in the US

DThat US market has long been a problem child for Volkswagen. The German automaker was at a loss here for a long time, and the buzz around the manipulation of diesel cars made its mark here as well. In the US, VW has descended from a “cultural icon” to an “irrelevance”, and Diesel’s case has made the group “unpopular”, America’s boss Scott Keogh said on Monday, summarizing developments over the past decades. Now the aim is to “like and love again” the brand.

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VW already made a profit in North America last year, though the group remained a niche supplier with a market share of around 4 percent. An investment aggressive should now take the leap forward. On Monday, the company said it plans to spend a total of $7.1 billion in the United States, Canada and Mexico over the next five years. The amount is part of a group-wide investment plan of 159 billion euros announced in December. A key building block in these plans is electromobility: VW wants to set up battery production in the USA and thus follow the example of its rival Mercedes-Benz, which opened a battery plant in Alabama a week earlier.

Volkswagen’s Americas chief Scott Keogh on Monday did not give any details about the location. VW also announced a goal of bringing more than 25 electric cars to the US market by 2030. By then, electric vehicles are expected to account for 55 percent of annual sales in the market, which would put VW slightly above US President Joe Biden’s goal of a 50 percent share of zero-emissions vehicles by 2030. VW is now selling its ID4 electric car in the US, a sporty off-road vehicle (SUV) that has so far been imported from Germany but is also set to be manufactured at the US plant in Chattanooga from this fall. Bully successor ID Buzz is to arrive in 2024, and further SUVs are planned for 2026. There is also speculation that VW wants to develop an electric pick-up van and thus open up a product segment that is particularly important in the United States. Keogh didn’t provide details, but said he thinks it’s a “good idea.”

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over 400,000 this year

VW CEO Herbert Diess announced an offensive last week to bolster its position in the US. It is about “balancing global activity”, i.e. being less dependent on the group’s key sales markets in Europe and China, he said. “We have a weakness in the United States, we’re focused on that.” Most recently, North America accounted for a good 9 percent of global sales in the VW Group, South America about 6 percent. The Asia-Pacific region, as China’s largest market, accounted for 41 percent, while Europe and the rest of the world accounted for about 44 percent.

This imbalance in global presence has long occupied the group, but the Ukraine war has given it new explosiveness. Following Russia’s attack on the neighboring country, European car factories are missing components that had previously come from plants in western Ukraine, notably cable harnesses. With a potential shock to the economy, there should be a severe impact on deliveries in the sector. Risks are rising in China as well, not least because the People’s Republic is not distancing itself from Putin’s aggression. Depending on how the conflict unfolds, restricted trade in China no longer seems entirely out of the question for VW.

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VW had early success in the US and competed with models such as the Beetle and Bully during the years of the economic boom, but was unable to keep up with the latter due to an inadequate range of vehicles and fierce competition. Meanwhile, there was a sense of optimism when the plant in Chattanooga opened in 2011 to manufacture cars specifically tailored to the US market. But after an initial uptick, business slowed down again, and then the diesel scandal plunged the company into the deepest crisis in its history.

The matter is now set in the background, last year VW was able to increase its sales figures in the US by 15 percent to 375,000 vehicles and was profitable. In the current year, America’s boss Keogh wants to make over 400,000, and then over 500,000 “quite quickly”. The current market share of 4 percent should more than double in the medium term, VW recently announced as a target.

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