Volkswagen officials told Chattanooga air pollution regulators in an April letter that they were moving ahead with an initial factory expansion to support "existing and future product lines" and start "Phase 2" of the plant's construction.
The second phase at the plant could nearly double production to 300,000 units a year if it eventually is finished, the company has said.
While Volkswagen officials said the addition cited in the letter to the Air Pollution Control Bureau relates to the existing Passat, it's seen as a positive sign that the automaker is eyeing Chattanooga as it considers where to put production of a new sport utility vehicle.
In the April 16 letter, VW General Manager of Plant Engineering Heinrick Keulmann said its emissions permit provides that Phase 2 construction must start by April 18.
He cited the erection of steel in January for a warehouse connected to the assembly shop, an extension that VW has said is costing about $17.7 million.
"This addition will allow for increased vehicle production capacity and will support VW-Chattanooga's operations by optimizing processes and improving logistics ..." the letter said.
The letter does not mention the SUV. Chattanooga is vying with VW operations in Mexico to make the vehicle, though the company has called the Tennessee plant the front-runner.
Keulmann said in his letter that "we will continue to keep you informed about the schedule for further construction as it becomes available."
Scott Wilson, a Chattanooga VW spokesman, said the warehouse addition is connected to the Passat midsize sedan.
"We may or may not get an SUV," he said, adding that the letter was filed "to keep that permit open."
Wilson said the added warehouse space could be useful should Chattanooga land production of the SUV or any other vehicle in the future.
He said that gearing up to produce 300,000 vehicles a year can be done without doubling the factory's footprint at Enterprise South industrial park.
VW officials also have said a future expansion could eventually mirror the size of the existing plant on land next to the present facility.
State House Majority Leader Gerald McCormick, R-Chattanooga, said Wednesday that VW's April letter "sounds like a good sign to me."
McCormick, in whose district the VW plant sits, said about attracting the SUV: "It makes sense to me ... that they come to Chattanooga."
He said the infrastructure is in place for a second vehicle line. McCormick said financial incentives are "on the table," though he added that he didn't have any inside knowledge about those enticements.
"We hope to hear good news soon," McCormick said.
J.Ed. Marston, the Chattanooga Area Chamber of Commerce's vice president of marketing, said that while the warehouse is being constructed to add capacity for VW's existing Passat line, "it's a step in the right direction if additional investment comes through."
"This is not a done deal," he said about the SUV project.
Bob Colby, who heads the Air Pollution Control Bureau, said VW is permitted for Phase 2 construction.
"If they get the SUV, they're already permitted for it," he said.
VW's sales in the U.S. are lagging as American buyers gravitate to trucks and SUVs. While the Passat's diesel version is setting new records so far this year, the sedan's total American sales are off 3.9 percent through April from a year ago.
VW chief Martin Winterkorn said Tuesday to shareholders in Germany that the SUV is seen as one of the foundations of the company's future growth in the Americas.
"We want -- we must -- grow there in terms of substance and profitability," he said.
U.S. Sen. Bob Corker, R-Tenn., said Monday he expects a decision on where the SUV will be produced in "the very near future. I'm not going to put a time frame, but it's moving in the right direction."
The warehouse extension will add 198,400 square feet. Begun in November, it's slated for completion in July or August.
The extra space will eliminate the need for two current external staging warehouses, VW said.
The expansion will add 14 dock doors for parts delivery with the option to add 20 loading docks in the future, according to VW.
Contact Mike Pare at email@example.com or 423-757-6318.