Volkswagen will spend $1 billion to upgrade and expand a factory in Mexico that will build a next-generation crossover SUV, the automaker has announced.
Construction on the plant, which is in the city of Puebla, will begin imminently, a VW spokesman said. Once the upgrades are completed, the automaker will build a new, three-row version of its Tiguan compact crossover due to hit the market in 2017.
“[The plant] is another proof point that Volkswagen is committed to further growth in the U.S. and North American markets,” Michael Horn, CEO of Volkswagen of America, said in a statement.
The company already used the Puebla plant to build the current-generation Golf hatchback and the forthcoming Golf SportWagen for the U.S. market. VW also builds the Jetta and Beetle models for the global market at the Mexican facility, which is about two hours southeast of Mexico City.
The expansion will add about 969,000 square feet of assembly space and around 2,000 jobs. The Tiguan will also be exported to markets in South America, VW said.
The announcement means about 90% of VW’s vehicles will be built in North America, Horn said: “Localization has become key to safeguarding our competitive position on the global market and manufacturing the Tiguan in Mexico will bring production closer to the U.S. market.”
VW’s current-generation Tiguan, on U.S. roads since 2008, has just two rows of seats. It competes with such other compact crossovers as the Honda CR-V, Toyota RAV4 and Ford Escape. The new model will grow longer to accommodate the extra row of chairs, but will remain a compact crossover.
Despite competing in one of the most popular vehicle segments in the market, VW’s more upmarket Tiguan has struggled against competitors. Sales in 2014 were down more than 16% versus a year earlier, and the Ford, Honda and Toyota rivals all sold more than 10 times the number of Tiguans sold.