Volkswagen is the world's No. 1 company for R&D spending. The automaker is expected to spend $17.4 billion on research and development this year. That far outpaces No. 2 Intel, which will lay out $13.6 billion.
Source: Schonfeld & Associates
A 300-acre tract of land next to Volkswagen's Chattanooga plant will play a key role as the company prepares to launch the German automaker's first research and development facility of its kind on American soil.
Innovation is the goal as VW moves forward with plans to build a new sport utility vehicle here, and that will apply even to suppliers for which the site has been set aside.
Chattanooga Mayor Andy Berke said VW wants to attract suppliers that will support its research and development activities, and work to improve the parts that will go into the SUV and other vehicles.
He said VW is seeking supplier innovation as well as to lower the cost of transporting parts to the automaker's factory.
"Having companies so close allows them to do both," Berke said.
In doing so, VW is emphasizing factors that Jay Baron, executive director of the Center for Automotive Research in Ann Arbor, Mich., describes as vital for the auto industry here.
Innovation and an enhanced supply chain are "the key for continued growth in the South," Baron said.
Volkswagen is the world's No. 1 company in research and development spending, outpacing even the world's biggest Internet and pharmaceutical companies, according to research group Schonfeld & Associates. The German carmaker this year will spend more than $17 billion worldwide on R&D.
Now VW plans to bring its R&D effort to bear in Chattanooga to better figure out the needs and wants of U.S. car buyers.
"The center will house professionals whose expertise will keep VW at the forefront of design and technology," said Christian Koch, who heads the automaker's operations in Chattanooga.
VW unveiled plans Monday to invest $600 million in its Chattanooga factory to build a new sport utility vehicle, creating 2,000 more jobs and pledging to hire 200 engineers for its proposed National Research & Development and Planning Center here.
Charles Wood, the Chattanooga Area Chamber of Commerce's vice president for economic development, said the R&D center won't be through a university but "truly a corporate center" and unique in the South.
"This is really a big flag to set in the ground for us," he said.
Such auto research centers, in addition to providing generally higher-paying jobs than production facilities, offer a knowledge base of skilled technical personnel.
Devashree Saha, a senior policy analyst in the Metropolitan Policy Program at Brookings Institution, said auto companies tend to bring a lot of ideas and know-how to an area.
"They spend more on R&D, and the productivity spillovers are huge," she said.
A new agreement signed by the automaker, the city and county in connection with the plant expansion states that developing the 300-acre tract for uses supportive of VW's "research and production activities ... is a priority."
As part of the overall agreement, VW will release the option it has on the 300 acres, said Hamilton County Mayor Jim Coppinger. VW still will hold an option to buy 900 acres in addition to the 1,300 acres it has surrounding the plant.
Coppinger said he sees the R&D move as an indicator of VW's efforts to understand the U.S. market.
"It wants to continue to do that better from here," Coppinger said.
While VW has moved into the No. 2 spot globally in sales behind Toyota through the first half of 2014, its market share in the U.S. is only 3 percent. VW sales have fallen by 13 percent so far this year over last. However, the company this week reiterated its goal of about doubling VW brand sales in the U.S. to 800,000 a year by 2018.
Berke said the 300 acres close to VW is perfect for tier one suppliers, which provide final equipment directly to vehicle manufacturers.
Karl Brauer, a senior auto analyst for Kelley Blue Book, said he recently heard top VW officials discuss at a meeting in Berlin the importance of investing in innovation.
"It invests in itself, its own employee innovation and in R&D," he said. "It's a key for its plans for the future."
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