Tennessee plant contends for VW’s next SUV model

VW’s CrossBlue midsize SUV will be introduced to U.S. consumers in 2016, and could be built at the company’s new plant in Chattanooga, Tenn. (Photos provided by Volkswagen)
VW’s CrossBlue midsize SUV will be introduced to U.S. consumers in 2016, and could be built at the company’s new plant in Chattanooga, Tenn. (Photos provided by Volkswagen)
Staff Report
colanews@scbiznews.com
Published Jan. 15, 2014

CHATTANOOGA, Tenn. — Volkswagen, the world’s No. 3 automaker, plans to build a midsize SUV in North America as part of the German manufacturer’s plan to grow market share among U.S. consumers.

The new model of SUV will be part of a multi-billion dollar investment program over the next five years in North America, VW Group CEO Martin Winterkorn said at this week’s North American International Auto Show in Detroit.

Winterkorn, though, didn’t say just where the SUV — called the CrossBlue — would be built. VW’s plant in Chattanooga is a strong candidate, according to at least one company executive.

VW Group CEO Martin Winterkorn
VW Group CEO Martin Winterkorn
“Chattanooga is in the lead,” Marc Trahan, executive vice president of VW of America, told reporters on Sept. 17, Automotive News reported. “We’ve made a significant investment in Chattanooga, and it’s one that we want to have its full potential realized.”

The $1 billion facility, which began operating in 2011, produces the automaker’s Passat model, a mid-sized sedan.

The plant has the capacity to produce 150,000 cars annually, but last year U.S. sales fell 6.3% to fewer than 110,000 vehicles.

The Chattanooga plant could be expanded to produce 250,000 vehicles, according to Bloomberg News.

VW’s plant in Puebla, Mexico, which opened in 1964, also is a contender, according to reports. The plant produces Beetles, Beetle Cabriolets, and Jettas. On Tuesday, the plant began production of the subcompact Golf.

The possibility of another model being added to the production line at Chattanooga could be a boon to regional suppliers. When it opened the Tennessee plant, VW planned to buy 85% of parts for the Passat from North American companies.

Three South Carolina companies — Magna Drive Automotive Industries, Inteva, Faurecia Interior Systems — provide parts for the Passat built at Chattanooga, which directly supports about 3,200 Volkswagen jobs, and indirectly 9,500 jobs at supplier companies.

In making this week’s announcement at Detroit, Winterkorn said VW Group planned to invest $7 billion in North America over the next five years and sell 1 million Volkswagen- and Audi-branded vehicles in the U.S. by 2018.

VW also is betting U.S. consumers will be attracted to a new model designed specifically for North America.

“We want many more American drivers to feel at home with our group brands and are working to achieve that with 100% commitment and plenty of passion,” Winterkorn said.

VW has to step up its efforts in North America if it wants to become the No. 1 car manufacturer in the world, said Christian Stadler, an industry analyst and professor at the University of Warwick in Coventry, England.

“The target they have set to sell 1 million cars by 2018 is very ambitious,” Stadler said. “It means that they need to increase sales by 10% each year in the U.S. A tough goal when we consider that the sale of the Volkswagen brand declined by 7% in 2013.”

While VW’s luxury brands — Audi, Porsche and Bentley — do well among U.S. consumers, the Volkswagen brand itself doesn’t have the same reputation for quality and good value as it does in Europe, Stadler said.

“Most car buyers in the U.S. would say Toyota has that reputation,” said Stadler, an associate professor of strategic management at the Warwick School of Business.

The new Passat produced at Chattanooga was designed to capture U.S. buyers. However, stiff competition from Toyota and General Motors, which reacted by slashing prices on their equivalent cars, knocked the fire out of VW’s assault.

To counter Toyota and GM and keep the Passat’s price competitive, VW cut costs by producing a stripped-down version. VW then tried to woo U.S. buyers by selling them the benefits of German engineering, Automotive News reported.

But that effort backfired when quality issues cropped up. According to J.D. Power’s initial quality survey for 2013, VW ranked 23 out of 33 car brands — between Jeep and Mazda — with owners reporting 120 problems for every 100 new cars within 90 days of being purchased. The industry average is 113 problems.

“It is time for Volkswagen to fight back and a new mid-sized SUV will help,” Stadler said. “They will be helped with the U.S. being a growth market, but this investment is welcome as it shows a shift in focus towards the U.S. They need to crack the U.S. if they are to become No. 1 in the world.”

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