VW Passat Made In Mexico?(also)

FRANKFURT, May 15, 2006; Reuters reported that Volkswagen might start building VW Passat cars for the North American market in its plant in Mexico by the end of the decade following a rise in the euro above the level of $1.25, they quoted Automotive News as saying today.

VW mainly assembles the Passat in Emden in northwestern Germany, one of its six loss-making western German plants, which VW intends to restructure.

The move should help lower its foreign exchange risk, since manufacturing cars in the NAFTA region would act as a natural hedge against further dollar declines versus the euro.

"We face day-to-day exchange rate costs that we simply cannot ignore," Reinhard Jung, head of production for the Volkswagen brand, was quoted as telling the industry trade publication during a media event in Athens.

Jung, formerly president of VW Mexico, said any time the euro's value rises above $1.25 it becomes a financial strain for VW. Currently, the euro is trading above $1.28.

"The exchange rate situation is unacceptable," he said, adding that the company "can't stay with the current export system".

Volkswagen narrowly reduced its operating loss in North America to 843 million euros ($1.1 billion) last year from 902 million, partly as a result of export-related currency headwinds.

In the first four months of this year Volkswagen has increased sales of the Passat saloon and estate in the United States by 40 percent to 17,683 vehicles.

The growth comes from a low base comparison, after the company suffered a 27 percent drop in U.S. sales of the Passat model line to just 49,233 units last year.

A spokeswoman for Volkswagen denied the company planned to build the Passat for the U.S. in Mexico.