Newly Christened Silao Engine Plant Key Piece in VW’s North American Strategy

SILAO, Mexico – Volkswagen’s new $500 million engine plant here is expected to ramp up quickly as it moves toward producing up to 330,000 4-cyl. gasoline engines for the auto maker’s Mexican- and U.S.-built cars.

CEO Martin Winterkorn was joined by Mexican President Enrique Peña Nieto and local dignitaries in pushing the button to start the line and kick off Job One at the facility on Tuesday.

The Silao plant, which is the 100^th factory for Volkswagen worldwide, was christened yesterday on the 49-year anniversary of the auto maker’s entry into Mexico, where it now has three manufacturing plants and plans a fourth to build Audi cross/utility vehicles in 2016.

“Silao is…a strong symbol of our uninterrupted growth trajectory and the (VW) Group’s continuing internationalization,” Winterkorn says.

Coming down the line here are VW’s new-generation EA888 direct-injection turbocharged engines, which over time will replace the 5-cyl. engines in VW’s lineup “step by step,” Ulrich Hackenberg, head of product development, said on the sidelines of the North American International Auto Show in Detroit.

Displacing 1.8L and 2.0L, the new powerplants are the third-generation of the Audi-designed TSI 4-cyl. engine that is used widely across the auto maker’s lineup.

Silao is the fourth plant building the revamped engines, which already are in production for Europe at Audi’s Gyor, Hungary, facility and in China at VW’s joint ventures with First Auto Works in Dalian and in Shanghai with Shanghai Automotive.

Currently, some 200 Silao hourly workers are making about 500 of the engines daily on one shift, but the plant is expected to hit 1,500 engines per day within the next three or four weeks, officials say.

Ultimately, Silao will be running three shifts, employing 600 hourly and 100 salaried workers producing 330,000 engines annually. The plant will run 24-hours per day and is scheduled to operate 280 days a year.

The Silao facility is located in an industrial park adjacent to a free-trade zone and rail access and is a short drive from the Guanajuato International airport. There are no casting operations here, but there are machining lines for the block, cylinder heads, crankshaft and connecting rod, as well as final-assembly operations and a test line.

The Mexican-built Jetta will be the first to use the new E888s later this year. Next up is the ’14 Passat, which is slated to get the 1.8L but could end up with the 2.0L instead or as an additional offering. VW officials yesterday were test-driving Passats equipped with the engines and say they still are sorting out which to make available in the U.S.

Application will follow in the Beetle, which like the Jetta is built at VW’s Puebla plant 310 miles (500 km) southwest of here.

As might be expected for a new plant, Silao incorporates Volkswagen’s latest technology and manufacturing concepts. The sparkling-white facility is clean and spacious, with prismatic skylights dotting the ceiling to let natural lighting in throughout while minimizing the need for electrical lighting.

Parts inventories are kept to a minimum, so there aren’t a lot of racks or bins cluttering up the aisle ways, with only one or two days’ supply of most components on hand, plant officials say.

Environmental initiatives include installation of 35,000 tubs and three reservoirs onsite for collecting rainwater for use in the plant. Wastewater also is recycled for re-use, and plans call for 35,000 plants and 35,000 pine trees to be added around the facility.

VW says it has achieved a Gold rating in LEED (Leadership in Energy and Environmental Design) certification for the Silao complex and is working toward platinum status.

All workers are new to VW and were hired from the surrounding area. Each undergoes at least six months of training before moving to the production line.

North American content is estimated at about 65% by value, but VW is working to increase that, including switching to a Mexican supplier for the engine’s cast-iron block. Currently the plant has contracts with 20 local suppliers. Some of the components are imported from the Gyor factory.

Audi is considered the design leader on the modular engine. But because it initially was configured to fit Audi’s longitudinal layout, it had to be modified for transverse applications in VW-brand vehicles.

The 16-valve 4-cyl. includes a chain drive and balance shaft and is said to produce less friction and burn less fuel than the previous-generation powerplant.

Weight was reduced in part by going to a thin-wall crankcase – just 0.1-in. (3-mm) thick – and a lighter balance shaft. The exhaust manifold was eliminated via a switch to a cylinder head with integrated exhaust-gas cooling.

The 1.8L engine is rated at 170 hp, while the 2.0L delivers 210 hp.

Most of the factory’s production will go to the Puebla-built models. About 90,000 units annually are headed for the Passat, but Frank Fischer, chairman of VW’s Chattanooga, TN, assembly plant where the sedan is built, says that volume could increase if customer demand warrants.

“There are no restrictions on this engine,” he says.

A higher-output version of the powerplant also appears an option. VW showed a Passat Performance Concept at the Detroit auto show this week that featured a more powerful 250-hp version of the 1.8L engine under the hood. That powerplant already is available in other markets.

It’s also likely Silao will supply engines for the Audis assembled at the new plant to open in San Jose Chiapa, Puebla, in 2016.

A second phase that would take output here to 500,000 engines annually is envisioned but not yet fully planned.

The facility is flexible enough to build two other VW engines, the EA211, the 4-cyl. gasoline engine used in the Jetta hybrid now hitting the market, and the EA288, a 4-cyl. diesel that will be available in the ’14 Audi A3. But neither appears scheduled for production here as yet.

Winterkorn says the Silao plant is an essential part of VW’s North American strategy, which calls for sale of 1 million VW- and Audi-brand cars in the U.S. by 2018.

“With this new plant, we are driving our ambitious major North American offensive forward,” the CEO says. “We will invest $5 billion in the next three years to increase local content in North America.”

Last year, VW built a record 610,198 vehicles in Puebla, up 19.6% from 2011. Sales in Mexico topped 160,000 units in 2012, an 8% gain from a year earlier.

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