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Audi will focus on buying in North America for new plant in Mexico

By: Stephen Downer

May 20, 2014

SAN JOSÉ CHIAPA, MEXICO — Suppliers of Audi AG’s first assembly complex in North America will buy most of their raw materials from within the region, according to the German auto maker.

“Ninety percent of our raw materials, including plastics resins, will come from NAFTA [countries],” Bernd Martens, an Audi board member in charge of the company’s procurement, told reporters.

Components such as interior mirrors, door panels, wire harnesses and dashboards will be supplied from a “just-in-sequence” (JIS) supplier park. Construction on the park started May 14.

For months Audi has been saying that to comply with NAFTA rules on exports, 65 percent of the value of the content of the vehicles it assembles in Mexico must be from North American Free Trade Agreement signatories: the United States, Canada and Mexico.

“We have reached that target,” Martens said in a speech at the park’s groundbreaking ceremony. Audi plans to increase local content to 90 percent in the medium term, he said.

The JIS park is scheduled to open this year and will employ 1,000 at startup, according to Audi. The park is located alongside Audi’s $1.3 billion assembly complex, which is under construction in the municipality of San José Chiapa, 40 miles northeast of Puebla. The complex is scheduled to start producing the Q5 SUV in 2016.

To date, seven suppliers have agreed to work with Audi at the park, according to Klaus-Peter Körner, head of production at Audi Mexico.

Martens said Audi has 130 suppliers signed up to supply the new plant, and Audi has placed orders for 80 percent of the parts it will need for the Q5. Some 75 percent of the suppliers are in North America.

Audi will produce 150,000 Q5s a year in San José Chiapa. “We may even double production,” Martens said. “In time we will review our plans. I believe this will be a sustainable project.”

Asked why Audi decided to build the factory in Mexico rather than in the United States, Martens replied: “Because this project is for world production. We needed a place which has [many] free-trade agreements” — Mexico has done free trade deal with 40-plus countries.

Puebla also is home to Volkswagen AG’s largest assembly plant in the Americas.