published Tuesday, June 3rd, 2014

Tennessee-Mexico incentive battle may delay VW's SUV decision until late June

This Volkswagen image shows the midsize SUV VW plans to build for the American market.
This Volkswagen image shows the midsize SUV VW plans to build for the American market.
Photo by Contributed Photo /Chattanooga Times Free Press.

A tug-of-war between Mexico and Tennessee over incentives could delay a decision at least until the end of June on where VW may make a new sport utility vehicle, Reuters reported Monday.

A decision to manufacture the crossover in Puebla, Mexico, would be a surprise as VW's management has all along preferred its Tennessee plant over the 50-year-old factory, unnamed sources said.

Last week, Tennessee Gov. Bill Haslam told the told the Times Free Press that the state had re-engaged with VW to convince the firm to build a midsize crossover at its Chattanooga plant.

VW had initially hoped to make the decision by now, sources said. The company has said it wants the vehicle to be in showrooms in 2016.

"VW is taking way too long again to tackle another pressing U.S. problem," said Arndt Ellinghorst, London-based analyst at ISI Group, to Reuters. "The crossover will be a gainful addition to their portfolio, VW has got no time to waste."

Sources gave no information about details of incentives discussed between VW and Tennessee officials, but said the state needed to top a package already pledged by authorities in Mexico.

One of the sources said it was also conceivable that VW might give the nod to a new factory built by its luxury division Audi in San Jose Chiapa, about 35 miles from its ageing Puebla facility. The Audi plant will be designed to assemble the Q5 SUV from 2016.

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