After workers reject union, Tennessee officials ready to talk SUV incentives with Volkswagen

After workers reject union, Tennessee officials ready to talk SUV incentives with Volkswagen

February 16th, 2014 by Mike Pare and Andy Sher in Local Regional News

POLL: Should VW workers form a micro-union?

Gov. Bill Haslam said he hopes to start discussions as early as this week with Volkswagen about a new incentive package to help the manufacturer settle on the Chattanooga plant to produce a new line of SUVs.

Speaking a day after workers at VW's Chattanooga workers turned back a UAW bid to organize the plant, Haslam said "obviously having the SUV line there is still incredibly important to us for a couple of reasons. One, it's a lot of jobs and two, the more different vehicles they're producing down there the better it is for the future of the plant."

VW officials said they would "be in touch ... after the vote," Haslam said.

Putting assembly of the SUV in Chattanooga could lead to hundreds of new jobs and potentially hundreds of millions of dollars in new investment at the plant. VW announced a midsize SUV concept called the CrossBlue at the Detroit auto show a year ago, and last month officials said they plan to build such a vehicle.

Chattanooga is competing with VW operations in Mexico for production, though the Scenic City has been called the front-runner for the SUV. VW officials are believed to have been trying to get production costs down for the project.

Eric Ibara, senior analyst at Kelley Blue Book, said one of the headwinds facing VW in America is the perception of noncompetitive prices for its vehicles.

"A union shop in Chattanooga would have likely made it more difficult for VW's management to get its costs under control," Ibara said in an email. "With the vote behind them, Volkswagen can now focus on designing and aggressively pricing the most competitive vehicles they can bring to market."

A package of state incentives for the SUV project became an issue last week. A pair of senior state legislators from Hamilton County indicated that incentives might be on the line should United Auto Woekers representation be approved at the plant.

State Sen. Bo Watson, R-Hixson, said incentives for VW "will have a very tough time passing the Tennessee Senate." House Majority Leader Gerald McCormick, R-Chattanooga, said incentives were at risk.

Bill Hagerty, Tennessee's commissioner of economic and community development, told The Associated Press last week that the 90-day incentives package offer made last year to VW for the SUV had recently expired.

VW employees against unionization speak to media Friday night after the vote count showed plant workers voted down representation by the United Auto Workers.

Photo by Dan Henry/Times Free Press.

VW's quest for higher sales volume stalled last year despite overall growth in the auto industry, and the SUV is seen as a key to getting growth in the U.S. back on track.

Martin Winterkorn, VW's chief executive, didn't say last month when a decision on the SUV assembly site will come, though one is expected soon because he wants the new vehicle based on the CrossBlue concept to be ready for 2016.

Frank Fischer, who heads VW's Chattanooga operations, said officials are looking at production costs related to the SUV.

"Part of it is localizing suppliers to cut transportation costs," he said.

U.S. Sen. Bob Corker on Saturday lauded plant workers concerning the union vote, and he defended his actions last week. On Wednesday, the former Chattanooga mayor said VW appears ready to add the second vehicle line in the city should workers reject the UAW.

"I'm very excited about the future both of VW here and our community at large," he said Saturday, calling the work of some anti-UAW workers "heroic" in terms of trying to get both sides of the issue out to plant employees.

"Those who were in the opposition, I think you'll see a tremendous amount of graciousness. Employees had to make such a big decision in such a short amount of time," the senator said. "People are going to focus on working together."

VW's sales have doubled since 2008 in the U.S. and market share is up.

Still, VW's U.S. sales last year slipped by about 7 percent, and the company is looking at gaining momentum from vehicles such as an updated Golf and new versions of the Passat and the Beetle along with higher SUV sales. A new SUV is expected to challenge such high-volume sellers as the Ford Explorer and Jeep Grand Cherokee.

The automaker already has spent $7 million to tweak the Chattanooga plant to boost production to 170,000 vehicles a year, an increase of 20,000. Officials have said that a second line could be added to the paint shop, and production ultimately could hit 250,000 vehicles a year.

In addition, site work has been ongoing to prepare an adjacent parcel possibly to mirror the existing plant and double capacity some day, though VW hasn't offered a time frame.

That work is being done to finalize site prep that was originally promised to VW by the state, according to officials. Major costs incurred last time included a new interstate exchange, rail line and utility lines.

As for potential incentives in exchange for bringing production of the new SUV to Chattanooga, Haslam noted that like most companies, Volkswagen's "interest is in cash grants up front for infrastructure and training costs."

Corker said he's "very hopeful, based on assurances we've been given, that it will all work out."

Contact staff writer Andy Sher at asher@timesfreepress.com.

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