Volkswagen hoping gamble on new plant will pay off big

CHATTANOOGA, Tenn -- CHATTANOOGA, Tenn. – Volkswagen is the latest import automaker to bring an assembly plant to the United States.

The German automaker announced last week that it would build a new U.S. plant in Chattanooga, a scenic mountain city nestled in the Tennessee River Valley at the southern end of the Appalachians.

For Volkswagen, the world’s third-largest automaker behind General Motors and Toyota, the decision to build in Chattanooga ended an eight-month search for a site that finally came down to a choice between Tennessee and Alabama.

Up until the announcement, Alabama had been reported to be the favorite. The state had promoted a site near Huntsville, the city where Toyota builds engines for the trucks it assembles in San Antonio.

The Chattanooga plant, about 100 miles northeast of Huntsville, is expected to open in early 2011, will cost about $1 billion, and initially will employ about 2,000 people, Volkswagen said.

The first product will be a new midsize sedan for the U.S. market, yet to be designed, which reportedly will sell for less than the current Passat. It’s expected to be built on the same chassis as the Passat, however, and there also probably will be an affordable crossover utility vehicle designed on the same architecture.

U.S. sales of the Passat have been weak compared with those of its key competitors, the Toyota Camry, Honda Accord and Nissan Altima. That’s mostly because the Passat is priced higher than its competitors. The new sedan from Tennessee will be priced to compete head to head with the top sellers in the midsize-sedan segment, Volkswagen has said.

This car is a key part of Volkswagen’s ambitious new strategy to increase U.S. sales to 800,000 vehicles by 2018, up from about 231,000 last year – which was only about 2 percent of the U.S. market.

Details of the sales plan were announced by Volkswagen of America President and Chief Executive Stefan Jacoby at the Chicago auto show in February, as he unveiled the new VW Routan minivan that goes on sale in the United States in September.

The van is not a Volkswagen product, though. Chrysler LLC will build the Routan at its plant in Windsor, Ontario, in a shared-platform arrangement that is becoming quite common in today’s challenging automotive manufacturing environment.

Rather than develop a van on its own – a process that could cost upwards of $1 billion, Volkswagen chose an alliance with Chrysler.

But it was Volkswagen that introduced the minivan concept to U.S. consumers with its iconic VW Bus of the 1950s, ’60s and ’70s. Combined with the venerable Beetle, that vehicle helped make Volkswagen the top U.S. import brand in the '60s and '70s.

That early success led to Volkswagen opening its first U.S. plant in 1978 in New Stanton, Pa., in a building that once housed a Chrysler assembly facility. The plant built Rabbits and a small Rabbit-based pickup for the U.S. market.

But decreasing sales as the Japanese automakers made their strong push into North America forced VW to close the plant in 1988, leaving as its only North American assembly facility a plant in Puebla, Mexico. That plant, which operates at capacity now, makes the Jetta and New Beetle for North America.

The strong value of the euro against the U.S. dollar makes it imperative that Volkswagen assemble cars in the United States rather than import them from Europe, as it does now with the Passat and its two SUVs, the pricey midsize Touareg and the new, compact 2009 Tiguan.

Lack of a plant in the United States is one reason VW chose to have Chrysler build the new minivan.

The Routan, whose underpinnings are the same as those of the redesigned 2008 Dodge Grand Caravan and Chrysler Town & Country, has its own unique exterior and interior styling elements, as well as a chassis that Volkswagen says was re-tuned to European driving standards.

Although the van is not technically a VW, Jacoby said the Routan would help the automaker achieve its goal of moving from its current roll as a niche vehicle marketer here to becoming a major player once again.

"There is a lot of love out there for Volkswagen," he said during the Routan introduction, adding that nearly everyone he meets in the United States has a VW story to tell from the past.

"The Volkswagen brand is part of the fabric of American popular culture," he said.

Jacoby was on hand in Tennessee to announce Volkswagen’s plans for the Chattanooga factory, joined onstage by Tennessee Gov. Phil Bredesen.

The event was held at the Hunter Museum of American Art, on a bluff overlooking the Tennessee River in the beautifully restored downtown Chattanooga waterfront area.

Jacoby told a crowd of several hundred people that "Tennessee is just the best fit for us."

With suppliers locating nearby to support the plant, as they have with San Antonio’s Toyota truck plant, new employment will go well beyond the number Volkswagen will hire, Bredesen said.

I was there for the announcement – in my hometown. The plant will be built in the city’s Enterprise South Industrial Park, 12 miles northeast of downtown.

The site has special significance for me. It once was the location of the Volunteer Army Ammunition Plant, which manufactured TNT for the U.S. military from World War II until the end of the Vietnam War in the mid-70s.

And it was what brought my family to Tennessee from our original home in West Virginia. My Dad was a civil engineer for Atlas Chemical Co., the contractor that operated the ammunition plant in '60s and '70s, before he went to work as an engineer for the giant federal utility, the Tennessee Valley Authority, in Chattanooga.

Chattanoogans are just as excited about the prospects of the new plant as San Antonio residents were when Toyota announced its decision to build the truck plant.

And for Volkswagen, just as it was for Toyota, the plant is an ambitious gamble on the prospects of selling a new vehicle in an already overcrowded U.S. market.

Only time will tell whether that gamble pays off, and Volkswagen can again become a favorite of American consumers.

The automotive columns of G. Chambers Williams III have appeared regularly in the Star-Telegram since 1995. Contact him at 210-250-3236; chambers@star-telegram.com.