Engine plant battle revs up

Engine plant battle revs up

April 18th, 2010 by Mike Pare in Volkswagen

Canada is dropping itself in the mix for a potential Volkswagen engine or transmission plant that would help service the German automaker's new Chattanooga factory.

The effort sets up a likely fight with the United States, possibly including Tennessee, to gain such a plant if VW moves ahead with a facility to make drivetrains.

"I expect some incentive wars," said Michelle Krebs, senior analyst for the automotive Web site Edmunds.com.

Toronto's The Globe and Mail newspaper reported Friday that Ontario's government is setting its sights on landing a VW engine or transmission plant.

Mark Drury, a Tennessee Department of Economic and Community Development spokesman, declined to comment on whether a drivetrain plant is on the department's radar. But, he said, state business recruiters always look for job-growth opportunities.

"We look at every project we come across and look at its potential," he said.

Guenther Scherelis, VW's general manager of communication for its Chattanooga operation, has termed reports of an engine plant "speculation." The company is focusing on getting the $1 billion Chattanooga plant ready to start production next year at Enterprise South industrial park.

J.Ed. Marston, the Chattanooga Area Chamber of Commerce's vice president of marketing, said Chamber officials have had no discussions with VW that an engine plant is on the horizon, though they have had conversations "about a variety of things we'd love to see happen."

Ms. Krebs said an engine or transmission plant "absolutely makes sense" for VW.

"The engine and transmission is a huge percent of the vehicle," she said. "One of the reasons VW is coming to the U.S. is to build sales and reduce costs. The U.S. has become an attractive manufacturing place."


Ms. Krebs said it's a pattern among automakers to announce an assembly plant, then put the production of engines, transmissions and other components fairly close to the factory.

For example, Nissan has a large assembly plant in Smyrna, Tenn., and it picked Decherd, Tenn., about 60 miles away, as an engine plant operation. The Decherd plant employs about 850 people.

But Ms. Krebs added that a drivetrain plant doesn't have to be on-site or even near the assembly operation.

"It could be in another state or anywhere in NAFTA," Ms. Krebs said, citing the North American Free Trade Agreement that involves the United States, Mexico and Canada.

VW officials have said the new midsize sedan to be made in the Chattanooga plant will get its engines, at least initially, from its facilities in Mexico and Germany.


Volkswagen facilities in Puebla, Mexico, make cars and engines, employing more than 14,000 people, according to the German automaker.

The Globe and Mail reported Ontario Economic Development Minister Sandra Pupatello as saying officials knew if they didn't land the assembly plant, an engine or transmission factory would be the next goal.

She said Ontario likely would lose such a plant to the United States if incentives are the only decision-making factor. But Ms. Pupatello told the newspaper that the Canadian province will showcase its skilled work force and innovation expertise.

For the assembly plant at Enterprise South, Tennessee and local governments are providing VW with an incentive package worth an estimated $577.4 million.

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