New SUV eyed as Chattanooga's partnership with Volkswagen turns five

New SUV eyed as Chattanooga's partnership with Volkswagen turns five

July 16th, 2013 by Mike Pare in Business Around the Region

VW CrossBlue shown in a publicity photo from the 2103 North American International Auto Show

Photo by Contributed Photo/Times Free Press.

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VW PLANT MILESTONES

• World's only LEED Platinum-certified auto factory

• Passat was 2012 Motor Trend magazine car of the year

• Assembled more than 250,000 Passats

• Holds Tennessee's biggest solar park

• Spurred 12,400 direct and indirect jobs

Source: VW, University of Tennessee

Dr. Martin Winterkorn, chairman of the board of management, Volkswagen Group, speaks at the North American International Auto Show in Detroit.

Photo by Associated Press/Times Free Press.

Five years after picking Chattanooga for its only U.S. production plant, Volkswagen officials are ratcheting up talk about assembling a new sport utility vehicle for American motorists.

VW officials in Chattanooga are making a strong case for producing the new SUV, which the company wants to build in 2015.

"With VW's past success in every level [at the plant], from quality to positive economic impact, VW has no reason not to consider expanding its presence," said Karl Brauer, Kelley Blue Books' senior director of insights.

VW Chief Executive Martin Winterkorn last week told the carmaker's dealer network the company is committed to selling a seven-seat SUV in the U.S., according to Automotive News. Winterkorn said VW needs to take initiative in that key market segment.

"And we will. I promise you," he reportedly told the dealers.

William Johnson, general manager of Al Johnson Volks-wagen in Dalton, Ga., said he believes VW will push ahead with the SUV, which will compete with the Ford Explorer, Honda Pilot and Toyota Highlander.

"That's a hot segment," Johnson said.

In January, VW unfurled the CrossBlue, a three-row SUV that would complement high-volume cars such as the compact Jetta and midsize Passat, which already is made in Chattanooga. VW's Mexico operations and Chattanooga are the candidates to assemble the SUV as VW officials say they want to avoid the currency fluctuations with European production.

VW's current SUV lineup of the Tiguan and Touareg are often seen as either too expensive or too small.

SUV is 'third leg'

Brauer said a better SUV lineup is "a strong third leg" to go with Jetta and Passat. He said expanding SUV's presence is "one of the keys to really selling a large number of vehicles."

"VW could really use an SUV that is built here," Brauer said. "It gets the benefit of seeing it as built in America and there's the economic benefit of not being at the mercy of currency shifts."

VW CrossBlue is shown at the 2103 North American International Auto Show.

Photo by Contributed Photo/Times Free Press.

Production costs also would fall with a U.S. production plant. BMW and Mercedes both came to the U.S. and first built SUVs at their plants, Brauer said.

"That was their beachhead," he said. "You could argue it's high time that VW put an SUV product in place in this country."

Frank Fischer, who heads VW's operations in Chattanooga, has said the CrossBlue would be "the perfect product for our plant." He expects a decision sometime this year.

Johnson said he's satisfied with Passat sales in the U.S.

"They're building a good car out there" at the Chattanooga plant, he said.

Made in America

Johnson said potential buyers would like to hear the SUV was made in America.

"That would be information they would like to hear," he said.

As fuel prices have moderated this year, American buyers have gravitated to pickups and SUVs. The German automaker's U.S. sales, too, have flattened out, though the numbers are competing against strong increases over the past year or two.

VW has set a goal of selling 800,000 vehicles in the United States by 2018, an ambitious goal considering it sold 438,133 cars and SUVs last year.

It was five years ago Monday when VW, state, city and Hamilton County leaders formally announced at the Hunter Museum of American Art that "It's Chattanooga." The city beat out Huntsville, Ala., and Michigan to land the $1 billion auto plant.

A new University of Tennessee study showed the plant has beat most expectations made in 2008. VW has spurred more than 12,400 direct and indirect jobs through 2012, the study said. That's nearly 1,000 jobs more than the 11,477 that were predicted in 2008.

While VW received about $577.4 million in state and local incentives five years ago, the study estimates the carmaker generates income of $643.1 million annually and boosts state and local tax revenues by $53.5 million a year.

Chattanooga Area Chamber of Commerce Chief Ron Harr said the VW plant had "a transformative effect" on the city.

CROSSBLUE

Local Volkswagen officials are making a strong case for producing a new SUV, called the CrossBlue, in Chattanooga.

"Volkswagen helped us build on efforts we've been working on for years while spotlighting our community worldwide," Harr said in a statement.

U.S. Sen. Bob Corker, R-Tenn., a former Chattanooga mayor, cited "the job creation that has occurred in Tennessee" as a result of VW's investment.

Still, the plant laid off 500 workers this spring, putting the factory's head count at just over 2,500 people. Also, the plant is the site of a pitched fight between the United Auto Workers and people who believe the UAW presence would hurt the factory, Chattanooga and Tennessee.

Fischer termed the last five years gratifying, citing the work of the VW employees.

"But now we've reached the end of the beginning and we will move forward into new challenges and new successes," he said.

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