Chattanooga Gears Up for 2011 Launch

Volkswagen AG Apparently Never got the memo that auto makers should downsize their manufacturing footprint to accommodate dismal sales in the U.S.

Instead, Europe's largest auto maker stages a big celebration in Chattanooga, TN, in mid-May to mark completion of the first structural steel for VW's $1 billion car assembly complex, scheduled for completion in early 2011.

While U.S. OEMs are closing plants, Volkswagen of America Inc. is convinced it has a long-term shot at success in the world's largest vehicle market.

The German company stopped U.S. assembly of vehicles more than 20 years ago and has struggled in that time to reshape a viable business plan to begin production anew. Since then, it has exported a large percentage of vehicles it sells in the U.S. from an assembly plant in Puebla, Mexico.

Today, its lack of a U.S. plant has become an advantage as domestic and transplant auto makers trim production schedules to accommodate historically low demand for new vehicles.

The U.S. does not need another assembly plant right now, but VW is counting on this market to rebound mightily. When it does, the domestic auto makers that have dominated will be much smaller, opening the door to new entries.

Backed by $577 million in state and local incentives, the sprawling 600-acre (243-ha) complex east of downtown in this city of 170,000 is targeted to build 150,000 vehicles annually.

VW isn't saying which car will be produced, but one official reveals it will be “somewhat larger than the Passat” sedan. That would put it in the upper end of the midsize car market, which accounts for 20% of all sales, and up against the Chevrolet Malibu, Ford Fusion, Honda Accord and Toyota Camry.

Some 30% of the units will be powered by VW's high-mileage award-winning TDI diesel engines, VW says. The 140-hp 2.0L SOHC turbodiesel in the Jetta TDI earned a spot on the 2009 Ward's 10 Best Engines list.

The auto maker views the new plant as a major contributor to its goal of selling 1 million vehicles in the U.S. by 2018.

Last year the VW Group's U.S. sales, including Audi and Porsche, totaled just under 279,000 units, with the VW brand, alone, reaching 204,000. Through April this year, VW brand sales lagged 16.5% behind 2007 at 58,000 vehicles.

“We looked at 400 locations and ended up with less than 10,” Frank Fischer, CEO of Volkswagen Group of America Chattanooga Operations, tells Ward's.

Huntsville, AL, was a finalist, but the Tennessee site was selected based on “political support,” availability timing, workforce potential, incentives package, Chattanooga's historic role as a rail center and the site's proximity to I-75 and I-24.

Among those wooing VW: Former Chattanooga mayor and now Republican U.S. Sen. Bob Corker, who gained exposure with his harsh criticism of the Detroit Three during their aid hearings in Washington.

Other factors favoring the Southern locale include availability of major suppliers already serving existing nearby transplants such as Daimler AG in Vance, AL, and BMW AG in Spartanburg, SC.

The site incorporates an adjacent supplier park for those companies investing in facilities to feed VW. Fischer expects many key suppliers will be located within 50 miles (80 km) of the plant.

He says 25 suppliers already are lined up. “We won't limit suppliers,” he says, adding they could be “American, Korean, Japanese or European.”

So far VW-Chattanooga has about 120 employees, chiefly salaried people, at its headquarters and engineering operations. The plant initially will employ 2,000 workers, a boost for an area where unemployment hovers around 8%.

VW already has 5,000 applications and expects to see up to 100,000, most via the Internet, says Fischer. VW also may test applicants online, Fischer says.

“We analyzed the workforce in the vicinity and discovered there were many highly skilled craftsman,” he says, adding wages and benefits “will be competitive” with other auto makers.

A University of Tennessee study indicates the new complex will create 10,000 jobs, direct and indirect.

From a distance, the plant site looks like a child's sandbox loaded with toys: bulldozers, backhoes, and steam shovels.

In a way, this is Thilo Brockhaus' sandbox. As an engineer responsible for project management, his job is to get the Chattanooga site leveled, remediated and the plant up and running. Brockhaus has done this work before at new VW plants in India and Russia.

The VW site is located in the Enterprise South industrial park, a 1,600-acre (647-ha) parcel that once was a U.S. Army munitions plant making TNT from World War II through the Vietnam War.

When the complex is completed, it will include a paint shop (first to be built), a stamping plant and assembly line. In a late and innovative move, the administrative offices will be located in the center of the complex — Brockhaus calls it a “spine” —s joining white- and blue-collar workers at the hip.

The city and Hamilton County have been responsible for prepping the site, and the city also is planting trees around the property. A test track and hiking trails also are part of the plan.

The complex will include a training center in collaboration with Chattanooga State Technical Community College.

Workers, however, won't park their cars at the site but, rather, arrive by bus. Some $110 million of the incentive cash is targeted for new roads, employee parking and fencing, Brockhaus says.

VW wants to make the new complex environmentally friendly by using more efficient electric motors, lighting and welding equipment and recycling ground water, for example. “Chattanooga will become the prototype for all future Volkswagen plants,” he says.

VW tried U.S. production before, in 1978, when it began assembly of the Rabbit at Westmoreland County, PA, in what had been an unfinished Chrysler Corp. plant. The Jetta was added later.

But in 1988 after five money-losing years, VW retreated. Before that, the original Beetle was a sensation among American buyers, soaring to 5 million sales from the early 1950s to 1979, when it was discontinued in the U.S.

VW Sticking to Ambitious Sales Goal
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