Volkswagen and DRB-Hicom today signed an agreement for local vehicle assembly in Malaysia, paving the way for VW to gradually expand its activities in Southeast Asia as part of its Strategy 2018 growth program.
The signing in Kuala Lumpur, which follows the MOU signed by both parties in August this year aimed at investigating the possibility of local vehicle production, was done in the presence of Prime Minister Datuk Seri Najib Tun Razak.
For starters, the Passat and Jetta sedans have been identified as the first VW models to be assembled here, with production of the first slated to begin from the end of 2011 at DRB-Hicom’s plant in Pekan, Pahang. The choice of powertrains or trim/spec levels weren’t announced, so we’ll all have to wait for details to unfold next year as the cars get closer to introduction.
DRB-Hicom stated that the operation is not to be seen as that of contract manufacturing, but rather a joint venture, with a significant involvement in the deal, which is worth around RM1bil – the planned ratio of DRB-Hicom’s investment is 70%, with VW injecting the remaining 30%. Pekan has a capacity to build 96,000 vehicles annually, and current capacity is just around a third of that, so there’s plenty of space in line with the new plans, though a significant amount of investment will be put in for infrastructure construction and product planning, among other things needed for the new venture.
Localisation in the assembly will certainly be an impetus, and the aim is to work towards a 40% local parts ratio on the Veedubs made in Pekan – VW will assist DRB in this localising aspect and help to identify suitable vendors, with everything having to conform to the tight quality control that VW is known for.
All this will move towards not just providing VWs for the local market, but for export as well. “Developing the market potential of the Asean region is of major significance for the Volkswagen Group’s long-term growth strategy,” said Christian Klingler, member of the board of management of Volkswagen AG with responsibility for sales and marketing.
He added that the Malaysian automobile market in particular, where more than 570,000 vehicles were sold in 2010, played an important role in the Group’s strategic planning. “We will be using existing structures and capacities at the DRB Hicom plant in Pekan to systematically extend our presence in the Malaysian market of the future,” Klingler added.
Plans are afoot to build further Volkswagen models for the Malaysian market on the basis of a local full scale production in the second expansion phase, from the end of 2012, with the Jetta scaled for then, and it will likely be joined by the Polo. This CKD assembly will have an initial annual capacity of several thousand vehicles and will be successively increased, and VW is looking at a figure of around 40,000 to 50,000 cars built annually, though that will be some time in the future.