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Autoeuropa Glimpses at VW's Future

Volkswagen at a Crossroads by Marty Padgett (6/19/2006)

New small SUV and diesels coming, but comprehensive U.S. strategy still in the works.

Volkswagen at Crossroads: Products by Marty Padgett (6/19/2006)

A range of revamped products are coming to the U.S. from VW.

Volkswagen AG, long an adherent to the virtues and benefits of mass production, is taking a new shine to niche vehicles built in relatively small volumes.

In its Autoeuropa plant in Palmela, a short drive outside of Lisbon, Portugal, VW is now building three different vehicles - the VW Sharan and SEAT Alhambra minivans and the new VW Eos - in relatively small numbers. Next year, VW will start to build a fourth vehicle, the reborn VW Scirocco, in the same plant, which has maximum capacity of 160,000 units annually.

That capacity is far below the volume many analysts assume is needed for a plant to remain profitable and competitive in today's harsh environment. The plant employs roughly 3000 workers and supports another 2400 in an industrial park adjacent to the plant and another 3700 workers at suppliers located primarily in theLisbon area.

Instrument panels, for example, come into the plant fully dressed and ready for installation from an outside supplier and another supplier, Webasto, has complete responsibility for the retractable hard top used on the Eos.

Costs contained

However, the Autoeuropa plant, while relatively small, still represents "good business" for Volkswagen because of its relatively small cost base and its ability to turn out vehicles for specialized markets, VW officials noted.

For example, the vans at Autoeuropa are turned into delivery vans for companies like Coca-Cola; police vehicles that are found in more and more cities across Europe; and special vehicles for disabled drivers, says Mario Rodrigues. The VW Eos, with a convertible top and sporty appearance and ride, is the first vehicle the plant will build for the North American market and the plant's staff spent months preparing for the launch this past spring.

Orlando Santos, the official in charge of the plant's finances, observed that the Autoeuropa plant, which has now built 1.2 million vehicles during its twelve-year active life, is something of a prototype for factories of the future. "Niche products are becoming increasingly important," said Santos. Building them profitably is a challenge because of the low volume. Nonetheless, Autoeuropa, which opened in 1994 as a joint venture between VW and Ford, has shown it is possible to build niche vehicles in Europe and remain profitable.

"We work on the philosophy of continuous improvement," says Rodrigues, who noted the plant was revamped recently to give the Eos its own dedicated final assembly line, which sits side by side with the assembly line on which the minivans are built. The other changes in the plant included revamping the body shop so it can handle the 4613 welds needed to produce the Eos' rigid body structure, Rodrigues noted.

The paint shop, which operates 365 days per year, now handles 31 different colors including a clutch of specialized colors, making it one of the most versatile in the industry. In addition, the plant can change colors as vehicles move through the paint shop without missing a beat or any kind of downtime for a changeover, VW officials said.

The employees at the Autoeuropa plant make about one-third as much as their counterparts in Germany but they have been given the power to control their own production, attendance, and quality, he added. In addition, the employees of the suppliers also work along VW employees along the final assembly line and in other parts of the plant.

Since less than two percent of the vehicles built at Autoeuropa are actually sold in Portugal, the customer feedback on the vehicles is collected in the German market, where the customers are considered among the most demanding in the world, he added.

Santo said logistics remains one of the key challenges for Autoeuropa since 98 percent of the plant's production is exported to either other parts of Europe or to North America. In addition, the engines and transmissions are imported into Portugal from Germany.

The relatively high cost of logistics means that Autoeuropa is required to keep a close eye on its other costs and rely on suppliers for cost-saving advice, he added.

Ford of Europe was part of the planning for the Autoeuropa venture when it was launched in 1991 but opted out of the partnership in 2001. The last Ford Galaxy MPV to roll off the Autoeuropa assembly line was built in February.

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