VW eyes Audis for local facility

The VW plant in Chattanooga may build Audi models as well as the new midsize VW sedan, Volkswagen officials say.

Stefan Jacoby, VW Group of America's chief executive, told Bloomberg news service on Tuesday that the automaker is considering building Audi models at the plant, although it hasn't made a final decision.

Audi is VW's luxury brand division.

"One of the big reasons for building an auto plant in the U.S. is you basically build where you sell," said industry analyst Aaron Bragman of IHS Global Insight. "That way you hedge your bet against currency fluctuations."

Erich Merkle of Autoconomy.com said that, with the new midsize VW sedan coming into production in Chattanooga, it would make the most sense to build an Audi model about the same size.

"If you bring them in as part of a larger Volkswagen operation, it certainly makes sense," he said.

Guenther Scherelis, general manager of communications for VW's Chattanooga operations, confirmed that production of Audi models is a possibility, but reiterated that no decision has been made.

Equipment will be installed in the Chattanooga plant that could accommodate Audi production if a green light is given, Mr. Scherelis said. But that is standard procedure within the VW group to give the carmaker flexibility in terms of production, he said.

The 2 million-square-foot plant is designed to build an initial 150,000 cars a year. However, VW has said it's adding 43,000 square feet to the assembly area's 775,000 square feet, and it already has bolstered the size of the paint shop.

Production at the plant is scheduled to begin in early 2011.

Volkswagen said recently in documents filed for a foreign trade zone application that it could more than double the size of its Chattanooga plant to nearly 5 million square feet if that capacity is needed.

The foreign trade zone designation could help the company's cash flow and cut costs by reducing the amount of duty VW would have to pay on imported components.

VW officials also said they're considering production of a sport utility vehicle at the Chattanooga plant.

Mr. Merkle said VW will "probably build as many cars as it can out of the Chattanooga plant," citing the exchange rate between the dollar and the euro.

"It doesn't make sense to build in Europe and ship here to the States, and they've got to reduce that exposure as much as possible," he said.

Mr. Bragman said building Audi models in the United States would boost the profitability of each car sold. But, he said, Audi still doesn't sell enough cars in the United States to justify its own plant.

Mr. Merkle said there already is a lot of sharing of the vehicle platforms between Audi and VW.

"It makes sense then to take those like architectures ... and build them out of the same plant," he said.

AUDI SALES

Through October, Audi reported it had sold 66,876 vehicles in the United States, down 8.7 percent from a year ago.

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