Volkswagen eyes more SUVs, electric car production in Chattanooga

Volkswagen eyes more SUVs, electric car production in Chattanooga

June 1st, 2017 by Staff Report in Breaking News

A new Volkswagen Atlas is seen in front of at Village Volkswagen on Thursday, May 18, 2017, in Chattanooga, Tenn. Tennessee gubernatorial candidate Randy Boyd purchased the first Chattanooga-made Atlas.

Photo by Doug Strickland /Times Free Press.

FAST FACTS

Volkswagen’s expanded Chattanooga factory now can produce about 250,000 vehicles a year. The plant now employs 3,450 workers, which is a new high for the factory that started making cars in 2011.

Volkswagen is looking to hit full production at its Chattanooga plant by 2020 and add more SUVs and possibly electric cars, which an analyst said could lead to the hiring of another shift of workers.

"Running at less than capacity is expensive. It makes all the sense in the world to put additional vehicles there," said Jack Nerad, executive editorial director for Kelley Blue Book.

VW brand chief Herbert Diess said in Germany on Wednesday the company "wants to strengthen the Chattanooga plant," which already just added assembly of the seven-seat Atlas SUV, along with the Passat sedan.

"The U.S. is a key market for every global automaker. It offers the biggest profit pool, and we have a lot of growth potential in the region," he told Bloomberg.

Nerad said Thursday there's a lot of excess capacity at the Chattanooga plant that VW would like to use.

"SUVs are the logical thing to increase," he said. "That's what's selling in the American market. They're trying to build where they sell."

Nerad also said the tough trade talk between President Donald Trump and Germany likely is a positive for the Chattanooga factory.

"I think it's good for Chattanooga," he said. "Potentially, it brings more American jobs there. It's a strong chip for VW [in trade negotiations]."

Dr. Steven Livingston, a Middle Tennessee State University professor who edits the Business and Economic Research Center's Global Commerce report, said he thinks a lot of the fray is just talk unless the U.S wants to risk an all-out trade war.

Livingston said that in the 1970s, when Japan was criticized for its trade surplus, the solution was an agreement under which that nation voluntarily limited its exports of cars and moved production to the U.S.

Volkswagen would have the same approach of getting inside tariff walls put up by the U.S., he said. However, one current difference is the existence of global auto model platforms, which might limit a company's ability to shift a lot of production, Livingston said.

"But over the short run, I'd bet that all automakers will sit tight to see if this blows over," he said in an email.

A $900 million Chattanooga factory expansion VW completed late last year led to the production of the Atlas, which went on sale the middle of last month.

VW plant spokesman Scott Wilson said the expanded factory now can produce about 250,000 vehicles a year. Passat production last year only hit about 93,000 vehicles. Even if Atlas figures surpass that number, a lot of capacity would remain at the factory.

Wilson said VW now has about 3,450 workers in Chattanooga, which is a new high for the plant that started making cars in 2011. But ramping up production to full capacity likely would mean the hiring of a lot of new workers, according to Nerad.

In April, Hinrich Woebcken, head of VW's North American operations, told reporters at the New York International Auto Show that VW is eyeing assembly of a second SUV, a five-seater, in Chattanooga.

While Woebcken didn't say when assembly might begin, he reportedly described the new SUV as a "brother or family member" of the Atlas.

Additionally, VW has unveiled plans to assemble electric vehicles in North America, potentially putting production of battery-powered cars in Chattanooga.

"Chattanooga would be the logical place to land that," Nerad said.

He said the trade talk between the U.S. and Germany is a negotiation tactic. While a lot of people see doom and gloom in the discussions, automakers are used to such talks, he said.

"This is not something unheard of," Nerad said. "It won't prevent people from buying European cars."

But Diess said expansion plans in Chattanooga may depend on clear signals from the U.S. administration.

"It has been a roller-coaster of emotions over the past months," he told Bloomberg. "We hope that we're going to have clarity in the next months. It influences investment decisions."

German companies sold $120 billion worth of goods to U.S. customers last year. U.S. companies sold just $65 billion to Germany, resulting in a German trade surplus.

For Diess and VW, bolstering sales and reversing losses in North America are key to strengthening the brand's weak profits outside China and overcoming the diesel emissions scandal.

Trump last month complained about Germany's trade surplus with the U.S., particularly blaming the auto industry for selling too many German cars in the U.S.

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


CORRECTION: A previous version of this story stated VW's production last year was 78,000 instead of 93,000.