Back From the Brink: How Chattanooga Emerged From Near-Death and Snagged VW's U.S. Plant

Last Updated Jun 24, 2010 3:14 PM EDT

Volkswagen is nearing completion of its $1 billion assembly plant in Chattanooga, Tenn., but the factory would have gone elsewhere without some last-minute brinksmanship and determined work by city and county officials. Other mid-sized cities have fought hard and been rewarded, but Chattanooga stands out because it rescued its bid from what looked like certain defeat.

In May of 2008, a Chattanooga TV station broadcast a report that the city had apparently lost its intense competition to snag Volkswagen's only manufacturing plant in the U.S. to Huntsville, Ala. The air filled with recriminations. Critics said that "brain dead" city leadership had overcharged for the proposed site and was "brain dead," "greedy" and "stupid."

Volkswagen, which has an ambitious plan to sell a million cars in the U.S. (with Audi) by 2018, considered 398 sites before narrowing the selection to Chattanooga, Huntsville and Marshall, Mich. The TV report was right at the time, because leaks from the VW camp indicated that Chattanooga was in first place as a city, but a distant third for the quality of its 6,000-acre site.

Things started to go, well, south in early May of 2008, when a 25-member VW delegation arrived and was given a city tour that included visits to Chattanooga's showpiece restored waterfront and the free electric bus shuttle. But a site visit did not go well. According to J. Ed Marston, Chattanooga Area Chamber of Commerce vice president, the delegates said that the 6,000 acres were too covered by vegetation to be properly evaluated. It appeared that Huntsville would win the day.

This was a crushing blow. Mayor Ron Littlefield told me that if the plant truly was lost, no politician's job would have been safe. "Securing the plant was the hardest thing we ever had to accomplish," he said. Chattanooga wanted an auto plant badly after losing Toyota to Tupelo, Miss., in 2007. (That plant shut down before it opened during the recession, but Toyota now plans to complete it to produce Corollas.)

All was not lost. Chattanooga extracted a promise from VW to return for a visit in several weeks, and commenced a crash program to clear the property, enlisting several hundred country and city public works employees and hiring outside help, too. It even set up a webcam with daily reports so the executives could follow progress from Germany. "We found out through our IT department that they were watching in Huntsville," Littlefield said. All this work was done with no guarantee that Chattanooga was still in the running -- in fact, every indication was that VW had moved on.

The Chamber also prepared a video entitled "Der Choo Choo" to try and help the company imagine locating in the city, which has been undergoing a sustainable makeover since the dark days of the late 60s when it was named one of America's dirtiest municipalities by Walter Cronkite.

The site was cleared, and the desperate gambit worked. "No other city had this level of support," said Tobias Schmedding, assistant environmental manager for VW's Chattanooga operations and a member of the company's U.S. site selection team. "Normally it takes six months to a year to secure an air quality permit [spelling out what can be emitted by VW's smokestacks]. But Chattanooga worked overtime to review our application and got it done in record time. We have a good relationship with the city."

Of course, VW's choice was made on more than the city's enthusiasm. The company also liked the site location within the city limits, Chattanooga's relatively low cost of living, and what Schmedding said was the city's "willingness to accommodate our tight building schedule." And the $511 million, 30-year package of local and state tax breaks was a big factor, too.

VW will be making 150,000 cars a year in Chattanooga when it opens with production of an as-yet-unnamed New Mid-sized Sedan (a Passat replacement codenamed NMS; see sketch) in 2011. One could argue that, because VW isn't paying taxes, it won't benefit the local economy. But that reasoning fails to consider the importance of providing jobs that pay $14.50 an hour in a city with nine percent unemployment.

In the long run, the deal should pay off for Chattanooga. According to Marston, the plant received 65,000 applications for 1,200 production jobs. He said that when suppliers (some of whom are relocating to Chattanooga to be near their biggest customer) and other factors are taken into account, activity related to the plant will bring in $55 million a year in tax revenue. And workers will earn wages worth $500 million annually.

VW is set for future expansion, with construction leaving room for "mirror" buildings that would double capacity. The local paper reported last week that the company has applied for a permit to install a larger water line to meet anticipated higher demand in this water-intensive business. That was interpreted by VW watchers as a sign of future growth. VW is just keeping its options open, said Guenther Scherelis, the plant's manager of communications. In any case, it seems to be in Chattanooga for the long haul.


Photos: Volkswagen Group of America