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Volkswagen Looks to Gulf to Cut Costs

18 June 2004

Volkswagen is considering moving the production of some of its polymer/composite components to the Gulf state of Abu Dhabi, which the German car company hopes will buy up to 10 per cent of its shares.

The carmaker, Europe's largest, said moving production of polymer and aluminum parts might make sense because of the rising cost of electricity - a major part of the cost - in Germany.

The feasibility study is still at an early stage but is likely to be seized on by industry lobby groups as the first example of business being driven out of Europe by the cost of new carbon trading rules designed to reduce pollution.

Bernd Pischetsrieder, chief executive, said: ""Due to the emission trading in Germany, suppliers - energy intensive suppliers - think that sooner or later they have to find another place to manufacture our components.""

The company is studying whether aluminium, rubber and plastic polymer parts could be made in Abu Dhabi, an oil-rich emirate where energy is cheap.

""Abu Dhabi has already a huge programme to develop industrial zones for that type of industry,"" he said. ""It was an immediate conclusion that we could be of some help.""

Large energy users have warned that the emissions trading regime in Europe - delayed by the failure of most member states to allocate emissions allowances - will devastate heavy industry when it comes into force.

""The first ones to be in danger are the ones where the energy cost is the highest in the end product - such as the aluminium industry,"" said Peter Claus, president of the International Federation of Industrial Energy Consumers.

""There are a whole range of basic industries which are vulnerable if we have to continue to compete with other regions, the Middle East, South Africa, the US, where electricity prices are $22 per megawatt-hour against as much as €28 [$33.80] per MWh in Europe.""





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