September 6, 2007
Confirming a report published by TheCarConnection.com earlier this week, Volkswagen announced on Thursday plans to move its U.S. corporate headquarters to suburban Washington, D.C., though it revealed that a significant portion of its current workforce will remain in place in Michigan.
The automaker also revealed that it is giving serious consideration to setting up an assembly plant in the U.S., a move long debated and considered even more urgent in light of the steadily weakening dollar.
Company officials have been considering a move out of Michigan for more than a year, and Stefan Jacoby, president and CEO of Volkswagen of America explained that the decision is the result of shifting corporate strategy.
“It is not a decision against Michigan and Michigan could not have (kept VW) because we wanted to be closer to our customers and our customer are on the East Coast,” said Jakoby.
Industry analysts and some former, senior executives question that assumption, however, suggesting that a major reason for VW’s current problems – it’s believed to have lost about $3 billion in the U.S. over the last two years – has been the consistent micromanagement by corporate headquarters, in Wolfsburg, Germany. Insiders, in the U.S., frequently complain that plans to adjust product and prices to the needs of American consumers have routinely been blocked by the German parent.
Jakoby acknowledged such concerns, admitting it was a hot topic at a staff meeting with employees to discuss the planned move. But he added, “I assure you…we are breaking through.” The transplanted German executive said turning things around in the U.S. is a top priority for the company and he has solid support to do whatever it takes, including not only reorganizing U.S. operations, but also getting new products more in tune with American needs and desires.
Whatever the reasoning, the planned move comes despite a desperate bid by Michigan and Detroit-area officials to head off yet another big setback to the Motor City’s ailing automotive base.
The corporate restructuring will leave about 600 jobs in place in Michigan, but a number of other managerial positions will shift to Herndon, a fast-growing D.C. suburb not far from the region’s primary international air hub, Dulles International Airport.
Virginia’s state and local governments reportedly approved $6 million in incentives to help lure in VW, including both cash and funds to be used to speed up land and road projects.
Eventually, VW intends to employ about 400 at the 185,000 square-foot office in Herndon, which would include 150 employees shifted from the Detroit suburb of Auburn Hills. But about 400 existing Michigan jobs will be eliminated entirely, part of Jacoby’s goal of slashing costs and reversing Volkswagen’s sizable losses.
Exchange rate issues will certainly play a role in VW’s ongoing study of whether or not to open a new U.S. assembly plant – the company was actually the first foreign automaker to operate a “transplant” assembly line, but closed the facility, in Westmoreland, Penna., 20 years ago. Jakoby declined to say when a final decision on a new plant would be made.
One step Jakoby ruled out would be a “streamlining” of VW’s U.S. dealer body. Those retailers have often come under fire for failing to deliver competitive levels of customer service – at least as measured by the well-followed J.D. Power and Associates, a California market research firm.
While Jakoby emphasized the need to reign in expenses, his overall plan reflects the thinking that a company cannot cost-cut its way to prosperity. So the biggest challenge for VW will be reversing the steady decline in its sales; it now accounts for less than 2 percent of the American market after double-digit losses in volume. In turn, VW of America currently generates just 5 percent of the automaker’s global sales.
But in recent years, North America, and primarily the U.S. market, has been a drain on the entire corporation. Jakoby said that with changes already underway and those still to come, “We have a goal of breaking even in this market by 2009.” While a worsening of the currently lopsided dollar/Euro exchange rate could be problematic, he added, “We have a good chance of achieving that goal.”
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