OM in the News: German Auto Makers’ Major Capacity Expansion Outside of Europe

For a bit of good news regarding manufacturing jobs in North America, The Wall Street Journal (Nov.26, 2012) writes that VW, BMW and Mercedes are all  ratcheting up capacity investments beyond the troubled European market.

Taking the lead, Volkswagen announced last week that it would invest $65 billion in its global operations over the next three years; this as Germany’s robust auto industry seeks to limit its exposure to  Europe. The move cuts a contrast to the belt-tightening of cash-strapped rivals such as France’s Peugeot and Italy’s Fiat which have shed assets or shelved model and technology changes this year as plummeting European sales push those companies deeper into the red. VW’s plan marks its efforts to step on the gas in its bid to dethrone Toyota as the world’s largest auto maker. Billions will go to a new Audi plant in Mexico. VW is likewise pouring money into Russia and China.

“Despite the challenging economic environment, we are investing more than ever before to reach our long-term goals,” says Volkswagen’s CEO.

BMW, which opened a second plant in China this year, is investing an additional €500 million with its Chinese joint-venture partner to boost production there. Meanwhile, it is spending $900 million to expand capacity at its plant in Spartanburg, S.C., and last month finalized plans to build a $261 million plant in Brazil.

Mercedes, which expanded into China later than rivals BMW and Audi, made plans last year to invest €2 billion in its venture with Chinese partner and a further $2.4 billion in expanding its Alabama plant.

Discussion questions:

1. Referring to Chapter 8’s discussion of Mercedes’ selection of Alabama for its 1st overseas plant, what are the benefits to the US of these expansions?

2. What are the dangers of major capacity expansions?