American-Made Rabbit

Volkswagenwerk AG finally made it official last week: the supervisory board voted to buy a plant in the U.S. to make its fast-selling Rabbit model. The move was scarcely a surprise; VW has been talking about putting up a U.S. plant for years. Nor will the giant German automaker be the first foreign company to assemble cars in America--Sweden's Volvo has already started building a $100 million plant in Chesapeake, Va. Still, the formal decision illustrates how changes in currency values can transform world business patterns.

VW had no choice. President Toni Schmuecker has often said that "we cannot do without the U.S. market," explaining that VW counts on selling one-third of its output there. But the automaker has not met that target recently: U.S. sales have plummeted from a peak of 571,441 cars in 1970 to 267,727 last year, helping to send VW skidding into the red. The company lost $313 million worldwide in 1974 and $100 million last year.

VW has streamlined its West German operations and replaced the legendary--but increasingly unexciting --Beetle with the faster, jauntier Rabbit (TIME, Feb. 2). Those measures boosted profits in Europe, but left Volkswagen with an almost insuperable problem in the U.S.: repeatedly the West German mark has jumped in value against the dollar, making VWs more expensive for American buyers. In 1970 the cheapest model sold for $1,839 in the U.S.; today it goes for $3,499.

Rare Case. By assembling cars in the U.S., VW can protect itself against further damaging currency fluctuations and perhaps cut production costs by $200 per car, a rare case in which a product can be manufactured more cheaply in the U.S. than overseas. One thing held VW back from the obvious move: labor unions feared that it would cause further layoffs in German plants. But VW proposes to retool its Emden plant, which has assembled Rabbits for the U.S., to make other export models, particularly Dashers and Audi Foxes. German labor leaders finally agreed to that plan.

U.S. labor chiefs are delighted too.

VW's American plant, which will cost up to $200 million, will have a capacity of 200,000 Rabbits a year. Engines, transmissions and some chassis parts will be shipped from Germany, but all other parts will be supplied by U.S. manufacturers. Those arrangements guarantee jobs for about 5,500 workers at VW's assembly plant and perhaps three or four times that many for suppliers.

Three sites are leading contenders for the VW plant: a former Westinghouse appliance factory in Columbus, Ohio, a federal tank plant in the Cleveland suburb of Brook Park and a partially completed Chrysler Corp. assembly plant at New Stanton, Pa. Whichever site Volkswagen chooses, it will soon have company. Now that it is moving into U.S. manufacturing, Japanese car makers are almost certain to follow.

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