Volkswagen AG’s plan to build SUVs in Chattanooga — committing $900 million and creating 2,000 jobs in the process — signals a new weapon in its quest to become a bigger player in the U.S., where sales and market share have suffered.
And it represents a boost to Republican politicians in Tennessee who advised hourly workers this past winter that if they rejected the United Auto Workers union — as they subsequently did — they’d get a new vehicle to build, and more jobs for their community.
Tennessee will award VW about $175 million in grants and other incentives to the project. In choosing to expand in Chattanooga, VW rejected Mexico, where a growing number of automakers are dramatically expanding production, to build its mid-sized SUV — a vehicle that industry analysts say it needs to be more competitive in the U.S.
“The Volkswagen brand is going on the attack again in America,” declared CEO Martin Winterkorn.
He announced the decision at a press conference Monday from VW’s headquarters in Wolfsburg, Germany. He said the new SUV — due by the end of 2016 — means VW is “taking the next step” in the U.S. market.
The SUV, developed for the North American market, is based on the CrossBlue concept vehicle that was first shown at the 2013 North American International Auto Show in Detroit. It will be bigger than VW’s Tiguan SUV. Winterkorn called it “a true American car: big, attractive and with lots of high-tech.”
In 2007, VW set an aggressive goal of 800,000 U.S. VW vehicle sales by 2018. But in the face of sinking sales — down 13.4 percent this year, to an anemic 3 percent of the market — Winterkorn said the automaker isn’t backing off the goal.
“With the midsize SUV segment among the hottest in the market right now, Volkswagen desperately needs a fresh entry here,” said Karl Brauer, senior analyst for Kelley Blue Book’s KBB.com. “VW has wanted to move this process forward for several months, but the financial and political uncertainty surrounding the Chattanooga plant delayed its decision. With today’s announcement, Volkswagen is poised to grow its sales and market share in the coming years.”
VW denied the decision to pick Chattanooga was tied to any outcome of a unionization vote in February, when workers narrowly rejected the UAW. Despite that vote, last week the UAW said it was forming Local 42 to represent VW workers and said it had no plans to seek another vote of all workers.
VW also announced that the chairman of the VW Group Works Council of Volkswagen, Bernd Osterloh, will join the board of Volkswagen Group of America.
It’s a sign the company still wants a works council in Chattanooga. Every other major VW factory worldwide is union-represented.
The UAW says once it wins the support of a “meaningful portion of Volkswagen’s Chattanooga workforce, we’re confident the company will recognize Local 42 by dealing with it as a members’ union that represents those employees who join the local.”
UAW Secretary-Treasurer Gary Casteel said Monday “the fact that the new line is being announced four days after the rollout of UAW Local 42 in Chattanooga reinforces the consensus that the UAW has reached with the company.”
VW repeatedly has said that no written agreement with the UAW has been reached.
VW will invest $900 million in the production of the new SUV, including $600 million in Tennessee. It will add 200 research and development jobs in Tennessee in a new center at the plant.
The press conference in Germany included Sen. Bob Corker, R-Tenn., the former Chattanooga mayor who six years ago helped convince VW to pick his city to build the plant that makes the Passat. Tennessee Gov. Bill Haslam, who also attended, said VW was “doubling down” on Tennessee and noted that Southern states have traditionally won significant auto production, but few R&D jobs.
Tennessee will award VW a $165.8 million grant for costs associated with site development and preparation, infrastructure, production equipment acquisition and installation, and facility construction. In addition, the state will provide a $12 million grant for training new employees. VW has agreed to “waive its right to claim certain statutorily available tax credits directly related to the expansion.” The plant employs 2,500 people.
The UAW’s Casteel called the decision “a major vote of confidence in the Volkswagen workforce and the state of Tennessee, and it underscores the company’s consensus with the UAW to secure high-quality jobs for the future.”
Some industry analysts think VW has over-emphasized cars in recent years and should have focused more on SUVs for the U.S. market.
VW’s all-time U.S. sales peak was in 1970, at nearly 570,000. It announced in 2007 it would move its U.S. headquarters from Michigan’s Oakland County, the epicenter of the U.S. auto industry, to Herndon, Va., to be closer to its East Coast customer base.
Many foreign automakers with major plants in the South, including Nissan Motor Co., Toyota Motor Corp. and Hyundai Motor Corp., still have major research and development operations in Michigan.
In 2011, the automaker opened the Chattanooga plant, its first in the United States since closing a plant in Pennsylvania in 1986. It now assembles in North America more than 72 percent of the vehicles it sells in the U.S. and has vowed to boost that to at least 75 percent.
The VW Group has more than a dozen brands across the world including Audi, Skoda, Lamborghini, Bentley, Porsche and Seat as it vows to become the world’s largest automaker. Despite its struggles in the U.S., worldwide sales were up 5 percent to 9.7 million in 2013 — and up 5.9 percent in the first half of 2014 to 4.97 million.