VW Tacks On North American Plants As It Seeks Greater U.S. Share

Though it has succeeded only in fits and starts in the U.S. market over the last half-century, American car buyers remain a sort of holy grail for Germany’s most fabled automotive company and one of the world’s largest automakers.

So VW keeps at it, confident and determined in the notion that it can still capture a significantly greater share of U.S. sales even with proliferating competition here.

And now, geopolitics and other factors have made the U.S. market even more attractive to VW than it loomed in the 1980s, when it built cars in Pennsylvania, and more enticing even than last decade, when the company opened a new plant in Chattanooga, Tennessee, to build vehicles in America once again.

That is why Volkswagen recently announced it plans to build a $2-billon new plant in South Carolina to produce Scout, a rugged-RV and truck brand that it used to sell in the United States. VW also said that it plans to put its first battery-cell plant outside of Europe in Canada. And the company is discussing another new facility to build its Audi luxury vehicles on the continent, adding to its plant in Puebla, Mexico, which supplies many Audis for the North American market.

“There’s a clear desire by the Volkswagen Group to establish North America as the third leg of our stool because we have a very strong presence in China, where the market’s transformation to battery-electric vehicles has created strong competition coming from local companies,” Reinhard Fischer, head of strategy for Volkswagen North America, told me.

Volkswagen also is sensitive to its dependence on the China market in part because of how Russia’s invasion of Ukraine has changed assessments of geopolitics. “Let’s make a scenario where [China] does something stupid and marches into Taiwan. How do we react? In Russia, we basically pulled out of the market and are looking for a buyer for our two plants, though maybe Russia becomes an input market again. If China goes down that path, they could expect a similar reaction” from Volkswagen and other automakers, Fischer said.

“Then look at Europe: We have maxed out at what we think is a reasonable market share there for VW. So, around the globe, the real big opportunity is the United States.”

Volkswagen’s share of the North American region is just 4.4%, Fischer said, while each of the Detroit Three, Toyota, and Hyundai and Kia combined possess 10%-plus shares. “We are under-represented in this market, so there is growth potential,” he said.

Another favorable factor for Volkswagen investment in the United States, he said, is the U.S.-Mexico-Canada trade agreement and the U.S. Inflation Reduction Act “which spends billions of dollars in local markets.”

South Carolina nabbed the new Scout plant thanks to a $1.3-billion incentive package offered by the state as well as a strong supply of labor, the pre-existence there of Volvo and Mercedes-Benz facilities, and “probably the most favorable working environment of any state we talked with and a willingness to help us establish our production facility,” Fischer said. Plus, the site just north of the state capital, Columbia, is reasonably close to Chattanooga and Puebla.