VW Investing $900 Mil to Expand Tenn. Plant, Add New CrossBlue SUV

German maker will also set up new product development and planning center at Chattanooga plant.

by on Jul.14, 2014

The VW CrossBlue Concept vehicles rolls past the maker's assembly plant in Chattanooga, TN.

After a long delay, Volkswagen officials have finally confirmed plans to expand the capacity of their big assembly plant in Chattanooga, Tennessee to produce and all-new midsize crossover-utility vehicle, a project that will cost the maker about $900 million.

After achieving significant growth earlier in the decade, VW is currently struggling to reverse a two-year sales slump that has threatened to leave it short of the ambitious goals it had set for 2018 when the company was hoping to sell 800,000 vehicles a year in the U.S. Based on the CrossBlue Concept vehicle, the new ute will play a “key role” in VW’s plans for the U.S. and broader North American market, declared the maker’s CEO Martin Winterkorn during an online news conference.

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“The Volkswagen brand will continue to go on the offensive in the American market,” said Winterkorn, who called the U.S. “one of the most important markets” for his company.

The VW CEO also announced that the German maker will add a new product development and planning center at the Chattanooga complex.

The announcement comes almost six years to the day after VW officials first announced plans to build a factory in Tennessee, the company’s first U.S. assembly line since it closed a troubled facility in Westmoreland, Pennsylvania in the mid-1980s.

VW's US President Michael Horn, TN Senator Bob Corker, and VW AG CEO Martin Winterkorn sign the documents approving the Chattanooga plant expansion.

The $900 million investment will cover both the final development of the midsize SUV, as well as the expansion to the Chattanooga plant – which will create a second line mirroring the current assembly operation, while adding 2,000 direct jobs and “many, many more,” stressed Winterkorn, at supplier companies.

In all, Volkswagen’s ongoing program to boost its presence in North America is expected to cost the company about 7 billion Euros, or nearly $10 billion, by 2018. Along with the Chattanooga plant and its upcoming expansion, the maker has added new assembly operations in Mexico for both the VW brand and for Audi, the luxury maker currently building a plant two hours outside of the capital Mexico City.

The Monday morning news conference didn’t answer all the questions about VW’s plans, however. One left unresolved is what name the company will give the new midsize SUV. It has been known as the CrossBlue since a concept version was unveiled several years ago. Whether it will retain that name was not clear, though VW officials pointedly did not mention the name, CrossBlue, during their news conference.

(VW investing $2.7 billion in China. Click Herefor the story.)

But Michael Horn, the new president of the Volkswagen Group of America, did confirm that the vehicle will be larger than the current VW Tiguan, while also offering more seating capacity than the full-size VW Touareg SUV. And he noted that it will be offered with a version of the maker’s TDI diesel engine technology. VW is currently the leading supplier of diesel-powered vehicles in the U.S. market.

Meanwhile, Horn stressed that the new SUV will be just the start of a product offensive specifically targeting the U.S. market, suggesting, “Stay tuned on derivative models we have planned. There will be more, I can promise you.”

Also unclear is why the announcement of the midsize SUV and Tennessee plant expansion was delayed so long. The German company had originally signaled the news would come by late 2013. There has been speculation that VW delayed the move because of the controversial vote at Chattanooga that defeated a recruiting bid by the United Auto Workers Union. The automaker had been supporting the UAW – and has since taken steps to bring the union in anyway – while state officials, including powerful Senator Bob Corker, actively campaigned against the labor group.

What appears clear is that VW now is putting a renewed emphasis on the U.S. market. Several senior insiders had suggested the company delayed its expansion plans while it focused on the Chinese market, now its largest. But there has been growing recognition within VW – as CEO Winterkorn made clear – that the U.S. remains critical to the maker’s long-term goals.

VW sold nearly 5 million vehicles worldwide during the first half of 2014, and is targeting 10 million for the year. It is also seeking to topple Toyota as the world’s largest automaker.

(U.S. downturn leaves VW short of target for first half of 2014. Click Here for the story.)

But it has had to cover a gap in the American market created by an unexpected shortfall in sales. While the maker’s Audi and Porsche subsidiaries have been setting records, VW is now in its third year of decline. VW Group of America president Horn recently told TheDetroitBureau.com that the maker might have to delay its ambitious sales targets until it fleshes out its line-up – with an emphasis on new SUVs.

Notably, Winterkorn said VW now is shooting for 800,000 sales in the U.S. by 2018. But that figure apparently includes both the Audi and Porsche brands. The VW marque alone originally had been targeting the 800,000 figure.

Nonetheless, VW officials took great pains during their Monday news conference to stress that the U.S. won’t be a second-tier market in their global plans.

“We are here to stay,” assured Christian Koch, who was recently appointed to run the Chattanooga plant.

(VW issues stop-sale order for new U.S. Golf, GTI models. Click Here to find out why.)

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2 Responses to “VW Investing $900 Mil to Expand Tenn. Plant, Add New CrossBlue SUV”

  1. Jorge says:

    Paul – I think you mean the Westmoreland, PA factory not the “Wolfsburg”, PA factory.

    VW will increase U.S. sales with the new SUV as the U.S. can’t get enough of these for some ungodly reason… but the VW owner experience will continue to stall U.S. sales, IMO.

    It’s good to see VW adding more U.S. jobs but I wonder how long they will last. History has shown that foreign auto companies build new factories in the southeast U.S. so they can enjoy lower labor costs. There may also be other less obvious reasons for building in low income areas…

    • Paul A. Eisenstein says:

      Thanks for the catch, Jorge…

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