VW prepares for Southeast Asia expansion

German automaker can after all declare success in setting up a production partnership in Southeast Asia. After its effort to build a partnership with the Malaysian-government-owned company Proton failed, VW has linked with Malaysian conglomerate DRB-HICOM, and both parties have signed an agreement to start assembly in late 2011.

The first model to be produced will be the Passat, followed by the new Jetta. A third model will come later and is likely to be the Polo sedan.

For the past five years, VW tried hard to build a partnership with Proton, but Proton's uncertainty, together with local political agendas, conspired to waste the carmaker’s time. They were courted, misled and dumped suddenly and left to find a new way to execute the VW Strategy 2018 Growth Program for the region.

German's new partner, DRB-HICOM, has been dynamic in the Malaysian automobile business — including ownership of Proton at one time. With its large production complex on the east coast of peninsular Malaysia, where Mercedes-Benz assembles its S-Class, DRB-HICOM was a reasonable alternative for VW to assemble its models for the Malaysia market, the largest passenger-car market in Southeast Asia.

Regional exports aren't likely to start as quickly as production. Observers suppose VW will wish to see how reliable build quality is from its partner's plant, which also assembles the Suzuki Swift and Isuzu trucks. The plant has a lot of spare capacity to handle increased output, because only about a third of its 96,000-unit installed capacity is being used now.

VW is also assembling the Touran MPV in Indonesia, an right model for that market, but is unable to decide whether to focus on a single model for the whole region. While MPVs are the most popular in Indonesia, pickups are most dominant in Thailand, while Malaysians like sedans. It may be that VW will assign one model to each country and make full use of the ASEAN Free Trader Area (AFTA) provisions for intra-ASEAN distribution.