CrossBlue Headed to Tennessee as VW Makes Bigger U.S. Commitment

The long-awaited commitment to build a new midsize CUV in Tennessee confirmed today is just the first step in what Volkswagen says is the second stage of its market assault in North America, which will include a new engineering center and a growing lineup of U.S.-tailored models.

“The Volkswagen brand is going to continue to go on the offensive in the U.S.,” CEO Martin Winterkorn says during a signing ceremony webcast from VW’s Wolfsburg, Germany, headquarters. “We want to bring the most innovative and attractive cars to North America. We want to be even faster in meeting the wishes of customers in the U.S.”

Plans call for an investment of $600 million in the Chattanooga, TN, plant to add production beginning late 2016 of the CrossBlue midsize CUV that debuted as a concept at the North American International Auto Show in 2013. The outlay will bring 2,000 new production jobs to the plant, as well as boost employment at a number of suppliers.

Also included in the outlay is a new North American Research & Development and Planning Center in Chattanooga that will be staffed by 200 engineers with the charter to identify what local customers want and incorporate those features into upcoming products.

VW’s struggles in the U.S., where it has seen sales fall 13.4% so far in 2014 after several years of strong growth, can be attributed in part to a lack of product tailored to the local market and its inability to launch new models in North America on a timely basis.

The 7-passenger CrossBlue is being counted on heavily to spark further growth, as it is positioned in the hottest segment of the U.S. and is expected to draw new customers looking for a CUV bigger than the Tiguan but less expensive than the Touareg.

“The Chattanooga-built midsize SUV will allow us to fulfill the wishes of our dealer network, bringing new customers to our showrooms and additional growth for the brand,” says Michael Horn, president and CEO of Volkswagen Group of America. “We are eager to be entering this growing vehicle segment with a world-class, 7-passenger SUV from Volkswagen.”

In all, Volkswagen will invest $900 million in North America between now and 2018 as it looks to reach its target of 800,000 VW-brand sales annually in the U.S. by then. Horn says the new product-development center will result in a number of new models and derivatives tailored for the market.

VW says production of the CrossBlue model will be integrated into the mix at Chattanooga, but an expansion of about 538,000 sq.-ft. (50,000 sq.-m) will be required to boost production overall.

Chattanooga always was considered the favorite to win CrossBlue sourcing, because the CUV will share its MQB platform with the Passat built there. But the decision dragged out far longer than executives planned, with insiders blaming challenges in formulating the final details of the business plan.

Mexico also weighed in with incentives designed to lure the project to VW’s Puebla plant, considered an odds-on favorite to land local output of the smaller Tiguan CUV, if the automaker decides to shift sourcing to North America.

Labor issues also might have been a factor delaying the decision in favor of Chattanooga, with the UAW narrowly losing a vote to represent the plant in February in a politically charged organization drive that had government officials hinting they would hold back on future tax breaks and infrastructure support if the plant were unionized.

VW appears to support some form of union representation, because it would allow the plant to work within the automaker’s works-council format worldwide. The UAW last week said it was setting up a new local at the plant to recruit members.

As part of the announcement today, VW appointed Group Works Council Chairman Bernd Osterloh to the board of directors at Volkswagen Group of America.

"We are pleased that Mr. Osterloh has declared his willingness to play a concentrated role in shaping our U.S. strategy in the future,” Winterkorn says. “He will represent the views of the workforce. This is in line with the codetermination culture of Volkswagen, which is one of our key success factors.”

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