I was reading today that after sacking 4000 people in Belgium VW are building a car plant in India. Clearly workforce loyalty does not apply with the western car companies like it does with the Japanese boys, but putting that aside this really does smack to me of short termism once again.
Rather than develop ways of engineering a product & it's processes to be made at lower cost & high quality with an already trained workforce, most US and European car makers seem hell bent on opening factories in low cost economies to try and become more profitable. (I realise that some Jap car companies are opening factories in India and China but it is not at the expense of other factory closures)
What worries me in this grand plan of theirs is that inevitably quality for the paying customer will suffer - at least in the first instance. For instance I recall quality problems with Golfs made in South Africa, is this to be repeated with the plant in India.
And when these low cost economies latch onto the fact that the factories are built (and shut elsewhere) and they can command higher salaries where does that then leave the car companies.
I bet Toyota must sit back and think carry on boys - we will continue to make cars in factories with proven quality standards that people want while you go building cars as cheaply as you can elsewhere.
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I thought it was because the import duties in India made it prohibitive to buy a foreign made car - so building a plant there would mean they could sell to the huge domestic market, sound business sense if you ask me.
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VW made cars in Nigeria for a while, quite an ambitious operation with a 'local' model, the Igala. I think the kits came from Brazil and were put together in Kaduna. I never saw an Igala-like car in Europe but I guess what it was was a sort of cheapo practical 411, a carburetted 1600 or 1800cc aircooled flat four at the back, bigger and more capacious than a Beetle.
Anyway the point was that the Igala was greatly scorned by Nigerians and the operation had to draw in its horns. Perhaps some assembly still goes on there but not much.
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I doubt they'll ship them here, more likely to Malaysia and Singapore etc.., India is going through it's 'yuppie' era, there are lots of young upwardly mobile and well educated people there now who want a new car, but want an 'exotic' Euro model rather than a Tata or Mahindra, until recently, it was impossible for foreign investors to get into India, but Manmohan Singh seems hell-bent on it. The proportion of the one fifth of humanity who live there which can afford to buy these cars is numerically significant.
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VAG makes cars in around 11 countries and has done so for a long time.
Some people might have been surprised that it built a new production plant in Czeckoslovakia (a country which has produced many fine engineers over the years), but the success of Skoda has proved the company right.
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What\'s for you won\'t pass you by
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VW are 10 years too late. They did a due diligence in 1995 and were not prepared to see a negative cashflow. Meanwhile Hyundai, Ford and GM have made significant in roads. They have even been outdone by Skoda, the Octavia does as a premuium brand and VW would have a tough time justifying pricing a Golf nearer a Honda Accord (hatches are considered downmenket). They plan to make the Passat but the Superb is already around but sells at limited quantities. The big seller is the Accord which will be diffilclt to dislodge.
The only hope would be to sell the Fox with high local content. Quality is not an issue as all Skoda's, korean and Japanise cars made here are trouble free. Fords not so. Service quality in a large country is key. Skoda not upto scratch on this front.
VW already got embroiled in a corruption scandal, the prospecting team asked the state government of Andhra Pradesh for around $2 million to be deposited in a slush account. This got found out during the recent clean up exercise and VW decided on Maharashtra. Funnny enought, VW, Skoda and Audi have potetnially grat synergies but wating money going their own way but some sense is prevailing. The Passat will be assembled by Skoda and Audi are considering following likewise.
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That is a really interesting post ajit - thanks.
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