published Sunday, May 18th, 2014

Chattanooga's Volkswagen plant could see unique auto assembly system

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Beginning in 2012, Volkswagen began marketing its new strategy under the code name MQB, which stands for Modularer Querbaukasten, translating from German to "Modular Transversel Toolkit" or "Modular Transverse Matrix."

If Chattanooga's Volkswagen plant lands the automaker's new sport utility vehicle, the company plans to install an innovative way of assembling cars that it says is groundbreaking to the industry. VW Chief Executive Martin Winterkorn said last week that the roll out of the company's Modular Transverse Toolkit in Chattanooga and at other plants will be "a unique success in the automotive industry."

The process enables VW to design models ranging from a three-door hatchback to an SUV virtually sharing the same front axle, pedal box and engine positioning, despite varying wheelbase and external dimensions.

It features a greater degree of plug-and-play modularity and parts commonality than at Toyota and General Motors, generating a lot of savings to the German car maker, according to industry experts.

Installing the Toolkit likely would make up a significant portion of the hundreds of millions of dollars in investment that assembly of the new seven-seat SUV is expected to generate.

Wherever the SUV is produced, in Chattanooga or Mexico, Winterkorn said it will be constructed with the Toolkit.

Alec Gutierrez, a Kelley Blue Book senior analyst, said the midsize SUV market is highly competitive, citing General Motors' Traverse, Chrysler's Grand Cherokee and the Dodge Durango. Making use of the Toolkit architecture will help VW keep its new vehicle cost efficient, he said.

Gutierrez said a key VW weakness in the U.S. is that its vehicles are consistently higher priced within their segments.

"By focusing on the platform, it brings down costs and keeps them better in line with the competition," he said.

VW's Strategy 2018 plan targets selling 10 million vehicles a year worldwide among its goals.

Winterkorn told shareholders at VW's annual meeting in Germany last week there's "a good chance" it may exceed that figure in 2014 -- four years ahead of schedule.

"But that is only one of many elements of our strategy," he said, noting it's also looking at achieving the most satisfied customers and motivated employees and "a strong return before tax of at least 8 percent."

Rolling out its Toolkit at other plants globally will be key both "technically and financially" for VW, Winterkorn said.

"We're working on this at full speed but also with the necessary patience," he said.

So far, VW has the Toolkit in nine plants. That's expected to grow to 20 plants in 20 countries in 2016, according to the automaker.

The company is now building about 1 million vehicles a year, or nearly 10 percent of its total, using the Toolkit, the company said. This year, the figure is expected to rise to 2 million vehicles, and toward the 4 million mark in 2016.

"You can be sure that, as volumes grow and new models are added, we will also see increasingly positive earnings effects," Winterkorn said.

While VW expects cost cuts and shortened assembly times from the Toolkit, some analysts are questioning the amount of savings.

London-based Bernstein analyst Abbas Quettawala has termed it "over hyped," according to Reuters. He cited high costs for installing the technology at plants around the globe and suppliers' difficulties in tooling up to make their components fit.

Barclays Capital analyst Michael Tyndall also told Reuters last year that synergies will be much smaller than previously estimated.

"There's still quite a lot of spending going on in terms of bringing new models to the market and subsequently transitioning existing production lines," Tyndall said.

VW has termed Chattanooga the front-runner to land the SUV, though the city is competing with company operations in Mexico. Last year, Tennessee offered nearly $300 million in financial incentives to VW to land the project.

An offer sheet leaked to the media earlier this year showed the incentives based on VW creating 960 jobs along with 240 contractor positions. In addition, the offer sheet included creation of 150 "headquarters" or management slots.

Contact 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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