The Detroit News - Volkswagen AG officially opens a $1 billionassembly plant here today,restoring a manufacturing presence in the United States after 23 years, as part of its planto become the world's leading automaker by the end of the decade.
The Chattanooga facility has hired 2,000 workers tobuild a car designed specifically for U.S. consumers: a roomier VW Passat midsizesedan that will go head to head againstToyota Motor Corp.'sbest-selling Camry and Ford Motor Co.'s Fusion in the biggest segment of the American car market.
As Asian automakers have demonstrated, designing vehicles with U.S. preferences in mind andproducingthem locally are essential to succeeding in the United States. But they don't guarantee success. Toyotaand Nissan Motor Co. both stumbled with theirrecentassembly plants in the South — in some cases misreading the market and, in others, attempting too many new things all at once.
VW has more than its reputationat stake in Chattanooga, a town tucked in the midst of a stretch of foreign-owned car factories, known as transplants, extending from South Carolina to Texas.The German automaker's new facility, built on thesite of a former armaments plant,is the centerpiece of Volkswagen'sassault onthe U.S. market, where it has invested$4 billion. Counting recent investmentsin Mexico, where Volkswagen buildsthe Jetta compact, the figure rises to $5 billion.
"Volkswagen's Chattanooga Operations LLC is the linchpin in the company's plot to triple U.S. sales to 800,000 vehicles in 2018," said BillVisnic, senior analyst at online auto research firm Edmunds.com."If VW intends to shoulder past Toyota to sit atop the automotive heap, that grand plan probably isn't going to work if Chattanooga doesn't work."
Volkswagen, Europe's largest automaker, was the first foreign car company to produce cars in the United States after World War II. But it shuttered its New Stanton, Pa., factory in 1988, after just 10 years, during an industry downturn thatled to many plant closures across the United States.
In the intervening years, Volkswagen strengthened its dominance in Europe, where it sells cars under the VW, Seat, Skoda, Audi, Bentley and other brands, and has become apowerhouse in China. In 2010, Volkswagen earned $9.42 billion.During the first quarter of 2011, VW sold 1.99 million vehicles,more than Toyota, which was hit by a record earthquake, to move intosecond place worldwide behind General Motors Co.
VW has said it wants to be No. 1 in 2018, selling 1 million vehicles by then in the United States, 800,000 VWs and 200,000 Audis.
Transplants have stumbled
Volkswagen Chief Executive Martin Winterkorn, VW's global sales chief Christian Klingler, Tennessee Gov. Phil Bredesen and U.S. Transportation Secretary Ray LaHood are among those scheduled toattend the plant's formal opening today.
But while plant openings evoke the prospect of new jobs and revenue, foreign automakers have stumbled with some of their recent transplants.
Toyota miscalculated the demand for full-size pickups when it built a truck plant in San Antonio five years ago, and ithalted construction ona plant near Tupelo, Miss., during the recent downturn that left it with idle capacity in North America.
Previously, Nissan suffered a dent to its reputation for quality after building all-new vehicles at an all-new plant in Canton, Miss., with new workers.
Volkswagen also is building an all-new model at a new plant with new workers. For Michael Robinet, Northville-based vice president of global forecasting at IHS Automotive, the biggest risk for VW isn't likely to be a lapse in quality.Automakers watch each others' missteps and learn, he said.
But with the newPassat, "they're moving into territory that's well occupied right now," Robinet said. "It'll be interesting to see how it all plays out."
Volkswagen has redesigned the Passat and the new Jetta to compete in the heart of their segments. Up to now,those models have been competing on the margins. Reflecting European preferences, they packed a lot of features intoa small size. But for the American market, they were small andoverpriced.
Last year,U.S. sales of VW-brand vehicles were just under 260,000 cars and light trucks, amounting to2.2 percent of the market.
During the past two years, Volkswagen sold fewer than 13,000previous-generation Passat cars annually, compared with annual Camry sales of more than 300,000 a year.
"Volkswagen was competing on the periphery because they couldn't be competitive in this segment ofthe mass market coming out of Europe," Robinet said.
Tenn. plant to cut VW costs
By producing vehicles here, Volkswagen will slash its costs. The exchange rate alone was crippling, given the dollar's longtime weakness against the European euro currency.
In Tennessee, the average Volkswagen wage works out to $27.64 an hour, or $57,500 a year, according to local officials. That's well below pay rates at other U.S. plants with older work forces, but it's agood salary here in Hamilton County, where the average is just under $40,000 a year.
Today's plant opening represents abreak for Chattanooga officials who have experienced much frustration watching plants go up all around them. Chattanooga lost out in the competition in 2007 for Toyota's last new plant — which ended up in Tupelo.
"It turned out to be a blessing," said Chattanooga Mayor Ron Littlefield. "Our plant will be up and running before their plant will be up and running."
