WOLFSBURG, GERMANY (WWJ) - Volkswagen confirming that it will build a new seven-passenger SUV at its Chattanooga, Tennessee plant. The new vehicle, based on a concept unveiled at the 2013 North American International Auto Show will roll off the assembly line starting in 2016.
"Volkswagen is expanding its commitment to the United States," said Volkswagen CEO Martin Winterkorn.
Tennessee state officials joining Winterkorn at Volkswagen's Wolfsburg, Germany headquarters for the announcement. The company will add 2000 new jobs at the plant, which already employs 2500. It will also mean a $900 million investment at the facility, which currently builds the Volkswagen Passatt.
"Lives are affected in a major way when an announcement like this is made," said Tennessee Senator Robert Corker. "Chattanooga has been changed forever because of your announcement," said Kelley Blue Book analyst Karl Brauer. "Today only puts an exclamation point on that."
Volkswagen also announced that it will open a new Research and Planning Center at the Chattanooga site, to help develop vehicles for the United States Market. Japanese import brands have had similar centers--many in the Detroit area-to help the better develop products that meet the tastes of American buyers.
"People are talking about the comeback of the United States as a location for industry and for car companies," said Winterkorn. "And, Volkswagen is a key pillar and a key component of this success story."
Foreign carmakers have greatly expanded their footprint in the United States, and in many cases are even exporting vehicles made in the USA to other markets.
As Volkswagen aims to double its U.S. sales, analysts say it needs an American designed mid-size SUV that will allow it to compete better than its previous entries in the segment.
"The mid-size SUV segment grew from roughly 750 thousand units in 2009, to more than 1.4 million cars nowadays," said Volkswagen of America President Michael Horn. "We can enter now into that segment. So, the seven-passenger, three-row SUV is a key product in the next phase of our growth strategy."
Volkswagen's previous SUV's have not done well in the U.S. market. It's becoming a more important segment for any carmaker that wants to have a significant role in the U.S. market.
"Although it has been falling in sales rather than growing, Volkswagen has announced a lofty goal of achieving sales of 800,000 vehicles in the U.S. by 2018, which basically doubles its sales from today.
To even get close to its goal, VW needs to beef up its product portfolio," said AutoTrader.com senior analyst Michelle Krebs. "This investment likely will address one of the glaring holes - an entry in the fastest-growing vehicle segment of small crossovers."
It's too early to tell the impact this announcement will have on the UAW's efforts to organize the Volkswagen plant. Just last week, the union organized a new local--Local 42--for the plant. UAW organizers hope to get recognition if they can get more than half of the work force to join the local. The union lost a narrow organizing vote last February.
"The fact that the new line is being announced four days after the rollout of UAW Local 42 in Chattanooga reinforces the consensus that the UAW has reached with the company," said UAW secretary-treasurer Gary Casteel. "A cornerstone of Volkswagen's business model is employee representation and participation in the company's Global Group Works Council."
While it's hard to tell what impact this decision will have on the organizing effort. Analysts say it is an indication that there is now enough stability to allow the investment to go ahead.
"VW has wanted to move this process forward for several months, but the financial and political uncertainty surrounding the Chattanooga plant delayed its decision. With today's announcement, Volkswagen is poised to grow its sales and market share in the coming years."
Volkswagen had considered building the new SUV at a plant in Mexico. Tennessee Governor Bill Haslam had been pushing the company to choose Chattanooga instead.
"It means a lot to us that Volkswagen would double-down on their bet, if you will on Chattanooga, with an investment that insures their continued commitment to the region for a long, long time."
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