Site Preparation is Nearly Completed at Volkswagen AG's new U.S. plant site in Chattanooga, TN, where the official groundbreaking is set for January.

Crews have been moving some 80,000 cu.-yds. (61,184 cu.-m) of dirt daily as they prepare for the start of construction, Chattanooga Operations LLC Chairman and CEO Frank Fischer tells a group of Tennessee state and local officials in Berlin on a get-to-know-you tour of VW operations and a recruiting mission to lure suppliers to the region.

Steel is expected to begin going up for the plant, announced in July, sometime around March, as VW points to a first-quarter 2011 launch of an all-new midsize sedan designed specifically with the U.S. market in mind.

VW is investing $1 billion in the plant, which initially will have capacity for 150,000 cars annually and include a body shop and paint and final assembly operations, but, at least initially, no stamping or powertrain capacity.

Construction of the plant, some 1.9 million sq.-ft. (176,600 sq.-m) under one roof, is expected to be completed in second-half 2009, and Fischer says tooling will be fully in place by second-half 2010. Trial builds will get under way by mid-2010 and run through start of production in first-quarter 2011.

Fischer says he fell in love with the 1,500-acre (607 ha) Chattanooga site, nestled alongside a 2,800-acre (1,133-ha) nature preserve, the first time he viewed it from the air during the selection process.

“We wondered why no OEM so far had discovered this area,” he says. “It is perfect.”

VW just recently completed its plans for the layout of the facility.

It features tightly clustered body, paint and assembly shops which the VW executive says will ease logistics and improve communications between the three operations.

Fischer says he has been working closely with Don Jackson, president-manufacturing who came to VW from Toyota Motor Engineering and Mfg. North America Inc., in recent weeks to finalize the plant's design.

“We're still optimizing the layout of the body shop,” Fischer says. “There's still a lot of work to do.”

A supplier park will butt up against the north side of the complex, potentially putting some six to 10 parts makers within 1,000 ft. (300 m) of the assembly line.

No suppliers have been indentified yet, but VW says ultimately it wants to source 80% of the parts for the new sedan in North America. The auto maker is considering outsourcing several major modules for just-in-time delivery, including the headliner, seats, cockpit, instrument panel and front-end assemblies.

But nothing is decided yet on how the car will be built or how parts will be sourced, says Jochem Heizmann, VW management board member in charge of manufacturing. Heizmann calls the 80% North American target a “midterm goal,” defining midterm as “not one to two years” and not pegged to the timing of the car's second generation.

To achieve that, VW will have to build engines and transmissions in North America, Heizmann admits, but he says for now the auto maker is focused on getting the assembly plant launched.

Initially, some of the powertrains for the new model will come from VW's operations in Puebla, Mexico. “But powertrain (capacity) will have to be added,” Heizmann says.

VW won't give preference to European suppliers when sourcing parts for the car it refers to as NMS, for new midsize sedan. “We're looking for competitive suppliers,” Heizmann says. “It's not our principle to use just European suppliers.”

He says VW would like to tap into some of the existing supplier infrastructure in the area that already is serving other auto makers in order to take advantage of cost savings generated by higher volumes.

“We need deep localization,” Heizmann says, right down to raw materials.

Stamping will be outsourced, and while VW's manufacturing chief says he doesn't rule out contracting with another U.S. OEM for pressed parts, “there are a lot of independent” fabricators that may be a better option than going with a direct competitor.

The Chattanooga plant is expected to employ 2,000 workers and produce 150,000 cars per year. Still under discussion is whether Audi AG, which also is looking for North American capacity, might utilize the Tennessee plant.

Heizmann says that while it would make it easier, any Audi built at the plant wouldn't necessarily have to share a platform with the new VW car.

Volkswagen remains guarded about the new vehicle it will build in Chattanooga, saying only that it is a midsize sedan that will be an addition to the lineup, not a replacement for the Jetta or Passat.

The car will fall into what VW considers the U.S. market's sweet spot — midsize sedans priced below $20,000.

“We have to have a competitive price position,” Heizmann says, a goal that has driven the product design and decision to locate a plant in the U.S. and will be a guiding principle in the selection of suppliers.

CEO Martin Winterkorn confirms the car will be derived from an existing platform. And head designer Walter de Silva says the styling is now locked in, promising the sedan will be a visual standout in the overcrowded U.S. midsize car market.

“I don't freeze a model (design) if I don't have a good feeling,” de Silva says.

Oliver Stefani, team leader for exterior design, concurs. “It is beautiful,” he says.

Still, de Silva says, the car will be unmistakably VW.

“First its product, then brand, then market,” he says, emphasizing even a car designed primarily for the U.S. must have VW DNA throughout.

Powertrains, Heizmann says, will include VW's DSG dual-clutch automated manual transmission and its direct-injection turbocharged diesel and gasoline engines.

The Chattanooga plant is a key cog in plans to expand VW/Audi annual sales in the U.S. from 324,079 in 2007 to some 1 million by 2018, about 800,000 of that VW-branded vehicles.

It will mark the second time VW has built cars in the U.S., having produced Rabbits and, ultimately, Jettas at a facility in Westmoreland, PA, until closing the plant following the '88 model run.

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