VW Beetle Sales Soar in Mexico

AIDED by a generous government tax break, the venerable Volkswagen Beetle is riding a new wave of popularity that has made it one of Mexico's best-selling cars. But ecologists in this smog-shrouded capital say the Beetle's outdated, air-cooled engine is an environmental hazard and the Bug's revival marks a setback for efforts to clean the city's foul air.

Beetle sales have jumped 300 percent since last September, when the government authorized a tax reduction that helped Volkswagen reduce its retail price by 20 percent.

Volkswagen's share of the domestic Mexican market for passenger cars has soared from 28 percent in 1989 to 40 percent during the first quarter of 1990, according to Automobile Industry Association of Mexico figures.

Demand for the 56-year-old classic is so great that buyers must wait a month for delivery, even though production has tripled to 450 cars per day at Volkswagen's plant at Puebla, 100 miles north of the capital.

However, the Bug's revival appears to be at odds with government efforts to reduce auto pollutants. Luis Manuel Guerra, an environmental consultant to Mexico City, says the Beetle produces 10 times more carbon monoxide than the newer Volkswagen Rabbit or Nissan Tsuru.

``The [Beetle] engine is the most polluting engine sold in the Americas,'' says Mr. Guerra. ``The engine was excellent from a mechanical point of view 30 years ago; but it stayed grossly behind ecologically since the '70s.''

More than 20 million Beetles have been made since the compact was introduced in Germany in 1934 as the ``people's car.'' It was a top seller in the United States and Europe until the late 1970s, when the Volkswagen took it off the market. Today, Mexico is the only country where the Bug is built and sold. Of the 1.25 million sold here since the model was introduced in 1956, some 400,000 are still on the road.

But the stifling pollution generated on Mexico City's crowded streets has forced the administration of President Carlos Salinas de Gortari to make cleanup efforts a top priority. Each day autos and factories spew some 11,000 tons of particulates. Ozone levels exceed the US Environmental Protection Agency's recommended minimum standard three times more often than in Los Angeles, the most polluted US city.

Auto pollution plus emissions from industry have made Mexico City's air the dirtiest in the world, says Guerra, whose private Autonomous Institute for Ecological Investigations also has conducted air pollution studies for the World Bank.

The administration has responded with measures that have made it more difficult and more costly to drive. Under an ordinance implemented last fall, each registered vehicle must remain parked one workday per week. Also since last year, new autos must be checked for emissions levels every six months.

City Hall has approved standards that by 1991 will require all new vehicles to be equipped with a catalytic converter and is considering plans which by 1992 or '93 would require new autos to have fuel-injected engines. The city also is thinking of requiring older vehicles to be retrofitted with catalytic converters.

The new standards have created a dilemma for Volkswagen because the Beetle's air-cooled engine is not easily adapted to the catalytic converter or fuel-injection systems.

In part, that is because the valve seats in the Beetle engine are not strong enough to withstand the higher pressures created by hotter-burning unleaded fuel, Guerra says. Also, he says the construction of the existing engine and the small engine compartment would make it virtually impossible to install the most up-to-date catalytic converters.

But Volkswagen engineers say the Beetle will be ready when the new standards take effect. Millow Hans-Gernot, chief of development in Volkswagen's emissions lab at Puebla, says the engine is being redesigned for 1991.

``Every single car will fill the new regulations,'' says Mr. Hans-Gernot. ``The government is using our technology in order to establish the new regulations and rules. We are working very closely with them.''

The Bug's rise in popularity stems from a 1988 conversation between Volkswagen of Mexico's chairman, Martin Josephi, and then-presidential candidate Salinas de Gortari. During a campaign stop in Puebla, Mr. Josephi beseeched Salinas to do something to revive Mexico's sagging auto industry.

New car sales fell drastically following an economic recession sparked by a drop in oil prices during the early 1980s. Between 1981 and 1983 production fell from 597,118 units to 285,485, according to Automobile Industry Association reports.

``The general idea was to find a formula to offer Mexican people the opportunity to buy a new car,'' says Francisco Zorroa, director of public relations for Volkswagen of Mexico. ``The government wanted a cheap car.''

Under the plan that emerged one year later, the government promised to waive the new-car tax for any company that could offer an acceptable reduction in its retail price. The cost of vehicles qualifying for the exemption could not exceed 14 million pesos, or about $5,500. Also, price hikes for qualifying autos could not exceed annual increases in the minimum wage.

The waiver reduced the price of the Beetle by 1 million pesos, or about $351 at current exchange rates. Both Volkswagen and its dealers each lowered their asking price by a like amount.

While the plan was open to all of Mexico's carmakers, only Volkswagen was able to achieve the economies of scale necessary to meet the government's price levels, and only with the Beetle, says Mr. Zorroa.

Critics have suggested that in order to meet the government's price, Volkswagen is sacrificing quality.

``What the common man in Mexico is feeling is that the Beetles are not very good. They are having problems. But people are willing to accept them because the car is cheap,'' says Francisco Zapata, a professor of labor relations at El Colegio de Mexico, one of the country's leading research institutes.

Volkswagen vigorously denies the accusation. Zorroa says Volkswagen can build the Bug for less because it has been building them for so long that its production costs are low.

``We can make Beetles in our sleep,'' he says.

Nissan, Mexico's second-leading carmaker with 23 percent of the market during the first quarter of 1990, declined to participate in the pact, saying its lowest-priced sedan, the Tsuru, could not be built properly at the government's price.

``We can't sacrifice quality of our product in order to compete with Volkswagen,'' says Nissan spokeswoman Maria Eugenia Garcia. ``We don't compete with them. We're in a different market.''

The Tsuru, which sells for about $7,700, was Mexico's biggest seller in the first quarter of 1990. Mexicans bought 22,171 Tsurus during the period, compared to 21,814 Beetles. However, when these figures are compared with 1989 first-quarter sales, the impact of the sedan pact becomes apparent. In 1989, Volkswagen sold only 8,564 Beetles during the first quarter. Meanwhile, Tsuru sales actually dropped slightly from 22,272 during the same period last year.

Volkswagen plans to boost production by the end of the year. ``It's going to be the cheapest car on the market, and we will build the Beetle until the Mexican people say they're tired of the Beetle, and that will never happen,'' Zorroa says.