Green light for local assembly of VW

It’s been a long journey for Volkswagen to get its cars assembled in Malaysia. Having made a strategic decision to become more active in the ASEAN region by engaging in local production, the German carmaker had tried to tie up with Proton which was seen as a ‘good fit’. But indecisiveness, vacillation and worse, different local political agendas made for a frustrating and time-wasting effort that saw VW courted and dumped by Proton, delaying it from strengthening its presence here. (Click here for our story on the end of the Proton-VW saga)

But once the Germans finally came to realize that trying to work with Proton was pointless, they quickly moved to find a new partner and settled on DRB-HICOM Berhad. Following the signing of a MoU earlier in August this year, the two companies have sorted out all the issues and today signed an exclusive collaboration and license agreement which will see local assembly of VW vehicles at DRB-HICOM’s manufacturing complex in Pekan, Pahang.

The arrangement that DRB-HICOM will have with VW differs from the one it has with Mercedes-Benz, which also assembles some of its models at the Pekan facility. In the Mercedes-Benz operation, the German carmaker has control of the production facilities but with VW, DRB-HICOM will be undertaking the assembly work for VW and then sell the finished products to VW Group Malaysia which is the distributor of VW vehicles here. This is the same approach as that used for the Suzuki Swift which is also assembled in the same complex.

While VW will not be managing assembly, it will nevertheless be deeply involved in ensuring that the quality is of the high standard that customers would expect. For sure, VW engineers will be present to assist and monitor the processes and there will be a transfer of know-how for testing and quality assurance of the locally-assembled models.
 

VW has a lot of experience in working with partners in different countries and its involvement in China since the mid-1980s shows that it can make a significant contribution to advancing the automotive industry. For now, Malaysia may see just basic local assembly of models but it is not inconceivable that in later years, VW may consider a regional model customized to local tastes, just as it has done in China with the Santana and more recently, the Passat and Jetta.

Christian Klingler, VW’s Board Member who was in KL to sign the agreement today, however noted that in ASEAN, the popularity of model types differs from country to country so it is difficult to decide on which model can be developed for a regional product. In Thailand, it’s pick-ups while in Indonesia, it’s MPVs while Malaysians favour sedans the most.

But he did say that the decision to start assembly operations in Malaysia is a major one for VW and it is something that has been included in its Strategy 2018 growth program which aims to take the brand to global leadership.

As for numbers, Mr. Klingler said the initial volume will start with ‘several thousand vehicles’ and there will be a second expansion phase from the end of 2012 when output will increase further. Understanding that it will take time for the processes to be streamlined, VW is not in a hurry to ramp up assembly numbers from the start at the end of 2011. They would also want to assess the situation as operations commence and then see what needs to be improved or revised to suit the conditions.

Will third model be the Polo Sedan which is now being made in Russia?

The first model that will be assembled locally will be the new Passat which was launched in New York early this year. This will be followed by the new Jetta, a model which has its global primary production base in VW’s Mexican plant. Mr. Klinger said that while parts will come from Mexico, that fact should not be of significance as VW has sources globally and what’s more important is that all parts are of the same VW standard.

The third model has not been identified though it is likely to be the Polo Sedan, a new variant of the latest Polo which was launched in Russia. VW Group Malaysia’s MD, Andreas Prinz, would not confirm this model and said that ‘any model can be on the list for local assembly’. But the Polo Sedan would certainly be ideal for this market and could well be priced under RM100,000, which would help boost VW’s sales.

The long-term plan would be to export from Malaysia and from the way VW seems to be doing things, it appears that the company will establish production hubs for different models in different countries. Indonesia already assembles the Touran MPV and Malaysia will do passenger cars, and it is possible that the pick-up model called the Amarok could be assembled in Thailand if they choose to do so. But it’s early days and the first thing will be to get its operations in Malaysia running well before considering anything on a larger scale.

Earlier story: VW finally gets a partner in Malaysia                Click here to read about the history of VW in Malaysia
To know more about VW products and services in Malaysia, visit www.volkswagen.com.my

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