Volkswagen Passat sales soft amid emissions scandal

They've got to get this SUV lined up and running as quickly as they can.

A Volkswagen employee at the company's Chattanooga assembly plant inspects a Passat as it passes through production.

U.S. sales of Volkswagen's Passat fell in January to the third lowest monthly mark since production of the sedan started in Chattanooga in mid-2011, the company reported Tuesday.

Still, the $600 million plant expansion to assemble a new sport utility vehicle in Chattanooga is moving ahead. A city panel on Tuesday approved a change to a $55.6 million building contract at the factory and endorsed tax breaks for a new VW parts supplier.

"They've got to get this SUV lined up and running as quickly as they can," said Mike Randle, publisher of Southern Business and Development magazine, about the vehicle slated for production in late 2016.

Passat's January sales totaled only 3,586, down 43.1 percent from a year ago. The sales drop reflected the company's ongoing struggles in the wake of the diesel emissions scandal as well as an industrywide softness in sedan sales as SUVs and trucks take off.

Passat's monthly low point in sales was last November when it sold just 2,759 units, though some of that was due to a production changeover to a refreshed sedan. Sales in September 2011 were 3,100 when VW was just launching the new Passat. By contrast, Passat sales flirted with the 11,000 mark as recently as June 2013.

Total VW sales in the U.S. last month dropped 14.5 percent to 20,079.

About the only highlight for VW last month was the Tiguan compact SUV for which sales rose 71.6 percent to 2,528, according to the company. Also, sales of its e-Golf surged 81.2 percent to 328 vehicles.

Mark McNabb, chief operating officer for Volkswagen of America, said the automaker is encouraged by the Tiguan's performance.

He said in a statement that January's overall sales numbers were down because of the seasonal nature of the fleet business. McNabb also cited weather conditions in the Northeast.

Randle said VW needs to push its emissions issues behind it, though he worried it may take "a long time."

"It's not a good situation," he said. "It's going to be a real struggle."

Volkswagen met a Tuesday deadline from California regulators to submit a repair plan for 80,000 diesel SUVs and larger cars that emit excess pollution, according to The Associated Press.

VW still hasn't announced a timetable for winning approval from U.S. and California regulators to address excess emissions in 575,000 2.0 and 3.0 liter U.S. vehicles. Last September, VW first acknowledged installing software that allowed diesel vehicles to emit up to 40 times legally allowable pollution.

Last week, VW won approval to start fixing 8.5 million vehicles in Europe. VW has said excess diesel emissions impact up to 11 million vehicles worldwide.

Bill Payne, Chattanooga city engineer, told the city Industrial Development Board on Tuesday that the $55.6 million contract with Gray Construction was 70 percent funded by the city and Hamilton County as part of the incentive agreement with the automaker. The remainder was financed by VW. The IDB oversees contracts involving local incentives and state grants to the plant expansion.

Also, Nick Wilkinson, the city's deputy director for economic development, said an incentive package for Chinese supplier Yanfeng already approved by the City Council and County Commission is "a great jobs announcement."

Yanfeng is moving into a building near the VW plant where it will make interiors for the new SUV. Wilkinson said the company is eventually slated to invest $55 million and hire 325 people. A payment-in-lieu-of-taxes agreement the IDB OK'd saves the company about $1 million, Wilkinson said.

"Obviously this is a key supporter for VW," he said. "It's key for its strategy for growth."

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