NAFTA and Volkswagen U.S. Mexico Germany High-end Production Suppliers Low-end Production Some supply) Marketing Distribution

NAFTA: Key Issues F Regional content F Over-reliance on German imports F Lack of US or Mexico supply network F Increased competition in Mexico and US F Devaluation of Peso F Labor instability

Mexico F Mexican government lures German FDI in wake of German reunification F Strike at Puebla, August 1992 F Pact for Stability, Competitiveness and Employment limits union’s ability to gain wage raises to 9.9%

Marketing Efforts F Cross-promotion of Irish folk/new age band “Clannad” (1993; music from commercials) F $45 million U.S. advertising campaign focuses on popularity of Golf /Jetta in Europe (1993) F J.D. Power ranks Golf as “best in class” (1995) F Pushes “test drive outings” vs. rivals’ cars (1995) F Major focus group effort vs. rivals’ cars (1995) F “Drivers Wanted” campaign signals VW’s focus on age group; $45 million (1995)

VW Changes F VW Mexico plans $1.0 bil investment: F Piech as new CEO January 1993 –Reversed Hahn’s growth strategy –Cut worldwide investment by 1/3and German workforce by 10% F Jose Lopez cutting supply costs –Reducing VW suppliers from 1,000 to under 100 –VW suppliers shifting production to low wage countries (including Mexico) F Considering US plant if 10-15% growth achieved

Depreciating Peso

VW’s US Sales Number of Units