Volkswagen could double Chattanooga's economic growth

Chattanooga’s economic growth rate could double because of the new Volkswagen assembly plant and all of its suppliers, EPB President Harold DePriest said Friday.

EPB, the city-owned electric utility, already has begun preparing information for five automotive suppliers who might locate near the $1 billion VW plant at the Enterprise South industrial park. Combined with other suppliers and spin-off businesses, Mr. DePriest said the 2,000 jobs Volkswagen plans to fill in Chattanooga eventually could expand up to 14,000 more jobs in the region.

“What we’re really excited about are the jobs and other residential and business growth Chattanooga will get,” Mr. DePriest told EPB directors during its monthly meeting Friday. “In looking at what has happened in other communities where major auto plants have located, we think we could see a doubling of growth from what we have seen.”

EPB has been adding about 2,000 new customers a year to its electric grid in the Chattanooga area over the past decade. But Mr. DePriest said that growth pace could jump up to 7,000 new customers a year once VW begins gearing up its plant in 2010 for vehicle production by 2011.

Volkswagen soon will be given about 1,350 acres of the Enterprise South industrial park, which will include enough land for a supplier park for companies that supply parts directly to Volkswagen. Such businesses are known as Tier 1 suppliers in the auto industry.

Stefan Jacoby, president of Volkswagen of America, said VW is on “a typically German schedule,” that is, fast paced.

“We will use the existing suppliers in the United States, as well as those in Asia and Europe,” he said. “We expect that most suppliers also will be directly located here. That makes the most sense.”

Mr. Jacoby said VW plans a supplier park around the facility and “our objective is to source as much as possible here in North America because of what for us is the unfavorable relationship between the U.S. dollar and the euro.”

The value of the dollar has dropped by nearly one-third compared to the euro in the past 2 1/2 years, making it less expensive for Volkswagen to produce car parts in the United States than in Germany.

Dr. Bill Fox, director of the Center for Business and Economic Research at the University of Tennessee, said the number of supplier jobs created by a new auto assembly plant usually is greater than at the assembly plant itself.

“What is unique about the automotive industry is that the supply linkages are so much greater than any other industry,” he said. “So the supplier economic effects are large and you get all the spillover effect from those businesses and their suppliers, as well as the assembly plant itself.”

Trevor Hamilton, vice president of economic development at the Chattanooga Area Chamber of Commerce, said his economic recruitment team is targeting potential suppliers to VW to encourage them to locate in Hamilton County.

“While the number of businesses that might locate in Chattanooga as a result of this project is still undetermined, we know with certainty that with auto assembly plants also come automotive suppliers and vendors that want to locate in close proximity,” he said.

Mr. DePriest said EPB has committed to providing a major electricity source to the VW plant site by December to serve major construction work. The Chattanooga electricity provider has only five industrial customers that get as much power as what EPB will deliver to the VW site by the end of this year, according to EPB Vice President David Wade. Within the next couple of years, Volkswagen will become the city’s biggest single industrial consumer of electricity, he said. Invista now is Chattanooga’s largest industrial customer.

By next year, EPB, TVA or VW will build a substation to help serve a much-larger electric load of 33 megawatts from Volkswagen. Over time, the utility will need to invest $15 million more to expand its service to VW and its suppliers, Mr. DePriest said.

One of the automotive suppliers with whom EPB already has talked, Mr. DePriest said, may want a major 22-megawatt service.

EPB, which completed a $220 million bond issue earlier this year, could be back in the bond market within three years, taking on more debt to serve its growing load, officials said.

“It’s a nice problem to have,” EPB Chairman Joe Ferguson said.

EPB’s electricity load declined in the 1980s when many of Chattanooga’s biggest industrial customers either closed or decreased their power usage. Last year was the first time EPB exceeded its 1978 peak demand of 1,278 megawatts of electricity.