Mexico: VW Bets a Billion

Although the German carmaker has not disclosed the name of the new vehicle in 2010, insiders say it is the next-generation Jetta for North America. Beyond that, VW is believed to be preparing for production in 2012 of the new Polo.

The Puebla plant is already the biggest automobile factory in Mexico, and will increase its size by about 25 percent. Its annual capacity will climb from 450,000 units to nearly 600,000, making Puebla one of the world's largest auto plants.

The Mexican investment is part of VW's grand 2018 Strategy, under which the company intends to become the industry leader worldwide. Last year, VW was the number-three car company measured by sales, after Toyota and GM, and this year it will finish second as a consequence of GM's significant shrinkage.

The new Jetta is expected to compete against the Honda Civic, Nissan Sentra and Toyota Corolla, as well as the Ford Focus. The new Polo would be aimed at the Honda Fit and Toyota Yaris, among others.

Volkswagen is also planning to launch a New Medium Sedan — NMS to insiders — by January 2011 at its Chattanooga, Tennessee plant, which is still under construction. VW plans to assemble an affordable, midsize four-door model based on the Passat, but with less content to reduce its cost and broaden its appeal. This car will compete against the Ford Fusion, Honda Accord and Toyota Camry.

With the North American launch of the Polo anticipated in less than three years, this would mean that Puebla would be seen as a hub for mass-market small cars, while Chattanooga is focused on larger products, including some future Audis from 2012.

Inside Line says: VW's goal to overtake Toyota as the leader in the industry by 2018 depends heavily on its success in the U.S. market, where the German carmaker isn't a relevant competitor, with less than 3 percent of the market. VW's decisive bet on its plants in Puebla and Chattanooga seems to be aligned to pursue this objective. — Loriana Marietta, Correspondent