published Sunday, June 1st, 2014

Does 'Made in America' mean something? Some say yes as VW weighs Chattanooga SUV decision

Poll
Do you prefer to buy "Made in America" vehicles?

MARKET SHARE

VW is lagging in capturing American car buyers in preliminary May 2014 figures:

• General Motors, 17.6 percent

• Ford, 16 percent

• Toyota, 14.3 percent

• Chrysler, 12.2 percent

• Honda, 9.3 percent

• Nissan, 8.4 percent

• Hyundai-Kia, 8.1 percent

• Volkswagen Group, 3.6 percent

Source: Kelley Blue Book

SUV SALES SURGE

Sport utility vehicles in the U.S. are the fastest-growing auto segments as shown in preliminary May comparisons over a year ago:

• Compact SUVs, up 11.9 percent

• Midsize SUVs, up 11.9 percent

• Full-size pickups, up 7.9 percent

• Compact cars, up 4 percent

• Midsize cars, up 2.5 percent

Source: Kelley Blue Book

Three new red, white and blue Passats sit directly in front of the entrance of Volkswagen's Chattanooga factory. Painted on the hood of the white sedan is an American flag with the words, "Proudly made in Chattanooga, Tn."

Autos are one of the few goods Americans buy that are required by law to show if they're made in the United States.

As VW weighs whether to build a new sport utility vehicle in Chattanooga or Mexico, some experts say that it makes a difference where an auto is made.

"Made in America is incredibly important," said Alec Gutierrez, a Kelley Blue Book senior analyst.

A survey by Consumer Reports shows that 78 percent of Americans would rather purchase an American product than an identical one made abroad, and that people are willing to pay more to buy American.

Gutierrez said "Made in America" is a selling point for automakers.

"Amid an economy with a lot of people out of work, it's important for foreign automakers to do business in the U.S., and for those employees who live in the U.S.," he said.

Steve Miller, area general manager for Nissan's Infiniti brand, said he'd use the fact that the company's new QX60 SUV is made at the Japanese car maker's Smyrna, Tenn., plant to make a sale.

"To me, that's something I'd point to," he said in Chattanooga last week at the opening of a new Infiniti dealership.

The Consumer Reports survey showed that more than 80 percent of people cited retaining manufacturing jobs and keeping that sector of the economy strong as a reason to buy American.

In addition, about 60 percent noted concerns about the use of child or other cheap labor overseas. And they said that American-made goods are of higher quality.

Jessica Caldwell, an analyst for Edmunds.com, said that foreign automakers making products in America is a concept that works.

"It makes sense to produce locally," Caldwell said, mentioning Japanese automotive giants Toyota and Honda.

Just last week, Toyota marked the assembly of 10 million vehicles at its Georgetown, Ky., plant since the first Camry rolled off the line in 1988. Employment at the plant is at 7,000, and Toyota's investment there is nearing $6 billion, according to the automaker.

Beginning in late 2015, the factory will produce the first U.S.-assembled Lexus.

Honda began making cars in America even earlier, starting in 1982 in Marysville, Ohio. That plant makes the popular Accord and other models while employing 4,200 people in a $4 billion investment.

VW was one of the first foreign automakers to open a production plant in North America, in New Stanton, Pa., in 1978. But VW closed the factory in 1988 after a variety of product and labor issues.

The opening of VW's Chattanooga plant in 2011 was seen as a return to America and a re-emphasis on the U.S. market by the German company.

Martin Winterkorn, VW's chief executive, said at this year's Detroit auto show that the company plans to spend about $7 billion in North America over the next five years, including the launch of the SUV, for which the Chattanooga plant is seen the front-runner to assemble.

"The U.S. is a cornerstone of our strategy" for 2018, which involves selling 1 million VW and Audi vehicles in the region within four years, Winterkorn said.

Caldwell said the U.S. is a market where VW needs to grow. She termed it "bizarre" that the company hasn't broken through with big sales in America given that VW is a top seller on nearly every other continent.

While VW is knocking on the door of becoming the world's biggest automaker by sales, its share of the U.S. market lingers at about 3.6 percent. VW brand sales have stagnated at about 400,000 units a year. The new midsize SUV is viewed as helping to strengthen the company's offerings in America and return it to growth.

Jesse Toprak, senior analyst for Cars.com, said VW needs to better understand that the U.S. market is unique. He said that globally, VW often makes one car "more or less" in a market segment.

"That fits most customers in most countries," Toprak said. "That method hasn't worked as well in the U.S. market. Consumers are a lot more sensitive to the design of the vehicle they buy. They not only want lots of value, they want it to look good."

VW is taking steps to better tailor its offerings to this country. The Chattanooga-made Passat is a step in that direction. It's a little larger and offers different features from the Passat that's sold in nearly the rest of the world outside North America.

Also, the new SUV is designed for U.S. motorists, officials have said.

In addition, VW is preparing to bring new and updated models to the U.S. on a shorter time frame to meet American demands for revamped products more quickly.

Volkswagen of America CEO Michael Horn told Bloomberg last week that VW will introduce new products every five years, with major refreshes after three years. VW currently introduces completely revamped vehicles every seven years, tweaking them after four.

"Customers want quicker change," Horn said. "We're working to shorten the life cycle of the products to bring more new features and design elements, in terms of face-lifts, to the market quicker. We believe we have a positive business case. It commercially makes sense that we move."

The faster pace of introductions, which a management board committee must still sign off on this month, wouldn't start until 2017 at the earliest, meaning it wouldn't help much toward the company's goal of reaching 800,000 VW-brand sales in the U.S. by 2018, Horn said. Through April, VW had sold 118,154 vehicles in the country, a 10 percent decline from last year.

Still, while "Made in America" is seen as a key, it's not always easy to know what's produced in the United States and what's not.

For example, Passats assembled in Chattanooga may contain parts made in Europe or Mexico.

Also, VW in its advertising touts its Tennessee-made Passat sedan while at the same time reminding buyers of its German engineering as it tries of offer Americans the best of both worlds.

"It's something that's going to be a symbol of the brand," said Jeff Sayen, advertising manager for Volkswagen of America.

Earlier this year, VW's online teaser ad for its Super Bowl commercial was a spoof that began with "a German engineer" using a so-called algorithm to come up with a commercial for "your big American football festival."

Former "Baywatch" actress Carmen Electra, decked out in a red dress against a black U.S.-made Passat, unintentionally set off the car's security alarm as part of a chaotic conclusion.

Contact staff writer Mike Pare at mpare@timesfreepress.com or 423-757-6318.

about Mike Pare...

Mike Pare, the deputy Business editor at the Chattanooga Times Free Press, has worked at the paper for 27 years. In addition to editing, Mike also writes Business stories and covers Volkswagen, economic development and manufacturing in Chattanooga and the surrounding area. In the past he also has covered higher education. Mike, a native of Fort Lauderdale, Fla., received a bachelor’s degree in communications from Florida Atlantic University. he worked at the Rome News-Tribune before ...

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