VW confirms new compact sedan, increases output of Puebla plant

Volkswagen today announced it will be increasing output at its Puebla, Mexico plant from 450,000 vehicles annually to 550,000 in order to accommodate production of a new compact sedan. The company has confirmed that it will be a new world car, intended for all of VW's markets except for China. That speaks to a potentially very compact sedan, possibly the production version of the 'space up!'sedan concept (pictured) shown at Frankfurt last year.

The likelihood for the up! connection increases when timelines are matched. The up!'s production schedule was recently pushed back due to the need to redesign the concept from a rear-engine, rear-drive to front-engine, front-drive configuration, for reasons of practicality and cost. That made the estimated production start date shift to early 2011, which is precisley when company officials think the Puebla plant will hit its increased capacity figures, reports Automotive News.

"The plan is to increase installed production capacity to 550,000 vehicles a year. We will reach this probably in 2011," said Otto Lindner, VW Mexico's CEO.

Eighty-four percent of the cars assembled in the first half of 2008 were exported to other markets, including the U.S. and Canada. That trend is expected to continue, meaning the new compact sedan will likely be headed to the U.S. as well. The $1 billion investment the company is making in the Puebla facility to enable the new compact sedan's production also fits in line with a profitable entry into the U.S. market.

The up! is also expected to be produced by Skoda in Europe and by other subsidiaries in other parts of the world. The localization of production is all part of VW's bigger plan to reduce costs and establish strong supply networks close to the home markets, in order to isolate the effects of fluctuating exchange rates and other economic changes. That means that right now the 60% Mexican-made parts figure for cars produced in the Puebla facility is targeted to increase to 90% by 2010.