Plant Life Grows in Tennessee

CHATTANOOGA, TN — On the vast floor of Volkswagen's new auto plant here, “Camptown Races” starts to play over the public address system.

Does that mean it is break time, combined with an interlude of traditional music? No, it means a problem is causing a delay somewhere on the line of this 2.5 million-sq.-ft. (232,257-sq.-m) facility that makes the all-new '12 Passat midsize sedan.

The song and tempo starts out slow and easy. If the problem were to persist, the music gradually would get louder and more intense “to let everyone know a problem is persisting,” a plant supervisor tells a group of journalists touring the plant.

A Civil War battle site attracts more than a million tourists a year to this city of 170,000 people. The new plant isn't a draw of that magnitude, but VW will host public tours of the place, starting in September.

Clearly, the German auto maker is proud of the $1 billion facility on a 1,400-acre (567-ha) site where bombs for the U.S. army once were made.

The plant still is ramping up, building 80 cars a day. VW expects to make 56,000 Passats here this year for the North American market. Ultimately, plans call for producing 150,000 units a year.

The factory employs 1,800 workers, with more to come. The local TV news carries updates about new job openings. “We'll certainly hit 2,000 soon and probably 2,200 at the end of the ramp up,” says VW spokesman Scott Wilson.

Workers undergo weeks of training at the VW Academy that is part of the complex. The plant has received 85,000 job applications. Line workers start at $14.50 an hour. Maximum pay is $19.50, attained after three years.

Local and state government offered tax abatements, land and more after VW in 2008 announced plans to build a manufacturing facility in the U.S.

“(Government) incentives were an important point, but not the only point,” says Frank Fisher, a German native who is president and CEO of the plant operation. “Another area offered more.”

Chattanooga had a lot going for it, he says. One was its relatively snowless weather, a major consideration. So was the region's junction of three major interstate highways.

“It was just perfect,” Fisher says.

Convincing VW to build in Chattanooga was “a huge deal,” says Dale Smith, general manager and part-owner of Village Volkswagen, a city dealership.

“We had just built a new facility when VW made the announcement,” he says. “Had we known beforehand we would have built a bigger place, because our sales have tripled in the past three years.”

Town folk recognize VW's commitment, including Smith's mother. “She has always driven Fords,” he says. “She just got a Jetta.”

When Chattanooga beat out 397 other possible sites and VW announced its decision in 2008, the local newspaper proclaimed in a big, bold headline: “It's Chattanooga.”

The city previously had lost out to Atlanta for a new Kia plant and Kentucky for a Toyota facility, Smith says. “Government officials were determined not to have that happen again.”

Plant construction began in 2009 and production launched this year. The first Passat came off the line April 9. It was shipped out, then returned to the factory where it now is on display.

The factory already has won awards for environmental initiatives. Chattanooga has become a “green” city after years of heavy pollution from earlier manufacturing facilities.

In 1969, the federal government declared Chattanooga's air as the dirtiest in the nation. Mountains around the city trapped steel mills' industrial pollutants and shrouded the city in a haze.

“It was filthy,” Smith says. “The city has done a 180-degree turnaround.”

Building a plant in the U.S., rather than importing cars from Europe, makes sense to VW for several reasons. One of them is avoiding potential currency-exchange imbalances that can claw into profits.

Another advantage to building VWs in America “is that it brings us closer to the market and gives us a greater understanding of customers here,” Fisher says.

Then there is the demonstration of commitment, he says. Average consumers might not know if their cars are made in America. But to 588 American VW dealers, “it shows we are strongly committed to the U.S. market.”

VW once was the No.1 international brand in the U.S. “We were much stronger here, but we are working on it,” Fisher says.

In the peak year of 1970, VW sold 582,573 units in the U.S., according to Ward's data. Last year, it sold 256,830. The ambitious goal is to sell 800,000 by 2018. The auto maker cites local vehicle production as part of the overall strategy for supercharging sales.

Passat's peak year was 2002 with 80,000 units delivered in the U.S. In the last few years, sales have lingered around 25,000.

VW wants the new Passat to vie more aggressively against the big boys in the midsize sedan segment, particularly the Toyota Camry and Honda Accord.

“The Passat is a make-or-break-vehicle,” says Kevin Joostema, VW of America's general manager-product marketing and strategy. “If we can't make a car that doesn't successfully compete in the midsize sedan segment, we've got problems.”

Although built in America, the new Passat was designed, engineered and tested in Germany, he says. “It is what you would expect from a German-engineered vehicle.

What is somewhat surprising is the price, which has been cut without cheapening the product.

The '12 Passat ranges from $19,995 for the base model to $32,950 for a premium version with a V-6 engine. That wide band is expected to draw in more customers.

“With the previous Passat, our only offering was a $27,400 MSRP,” Joostema tells Ward's. “That only allowed us to be competing in 8% of the midsize sedan transaction range. It wasn't well-positioned. Now, we are close to 80%. To go from 8% to 80% is incredible.”

He says VW wants to find its “sweet spot” in a major segment with nearly 30 different models and sales of nearly 3 million last year. Six vehicles accounted for 1.6 million of those deliveries.

VW expects Passat's planned conquest sales to come from within the segment, not outside it. “We are targeting people with the mindset and openness to covert to the VW brand,” Joostema says.

Using statistical data profiling based on psychographics, the auto maker is providing its dealers with lists of prospects in their markets who “show a propensity to buy a Passat or convert over to one,” he says.

Demographically, Passat owners have been “a bit more educated and younger” than other midsize sedan buyers. “We need to trend more to the middle.”

VW's main plant in Wolfsburg, Germany, offers a program in which buyers can tour the factory, then pick up their new cars.

Nothing like that is planned in Chattanooga. “I think our local dealer would want to be the delivery point,” Wilson says.

“I agree with that 100%,” Village VW's Smith says.