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Volkswagen Announces New U.S. Factory

After well over a year of speculation, Volkswagen has finally announced that it will build a new production facility in Chattanooga, Tennessee. The location of the new facility is northwest of the Chattanooga city center on a 1350-acre site called Enterprise South Industrial Park. The new facility will directly create more than 1,200 new jobs and additional suppliers that move into the area to support the factory will increase that number substantially. Volkswagen expects the facility to invest more than $1 billion into the local economy.

Volkswagen plans to produce a new mid-sized platform at this factory. Essentially this will be a U.S. market-specific Passat model, although it may not be called “Passat” when it arrives in 2011. The current Passat is the number one selling mid-size sedan in Germany and is therefore important to Volkswagen AG. This means the development of the Passat primarily focuses on the needs of the German market first and all other markets second. The current model is also produced in Emden, Germany and is expensive to export to the U.S. market due to the poor value of the dollar. As a result the U.S. Passat costs more than similar competitors, isn’t competitive in dimensions and size and struggles to find its market niche. Volkswagen of America will now be able to specifically build a car better suited to this market, realize significant cost savings (since it won’t have to be imported from Germany) and, most importantly, have a new mid-size car platform strategy that *could* result in a minivan and other mid-size vehicle entries that share components similar to the Toyota Camry/Sienna/Highlander.

One other interesting note in the press release below is Dr. Winterkorn’s prediction that Volkswagen will be selling 800,000 plus vehicles in the U.S. market by 2018. If this were true (despite our enthusiasm for the company we’re very skeptical VW can pull it off) the company and brand would no doubt change significantly with that number of products on the road. VW would go from a unique quirky European brand with a young following to another mass-market brand likely to lose some of its youthfulness, particularly if we start seeing VWs on every street corner. VW *has* to be profitable in this country and we can’t blame any manufacturer for wanting to increase sales. However if VW spends too much time chasing the 500 pound gorilla that is Toyota they may lose focus on what makes their vehicles unique and ultimately end up with compromised products, too many models and a customer base that starts climbing in age. The average age of a Camry owner is 54 now. Is that the demographic VW wants in their Passat? So long as VW continues to a build a product that is uniquely VW, european in character and isn’t watered down chasing U.S. consumer tastes and Toyota blandness, we’ll remain excited about the future. Anyway, we’ll get off our soapbox and wish VW luck with their new facility. We’re excited to see what products they produce and look forward to some new products we can sink our teeth into.

VW’s press release follows below:

VOLKSWAGEN GROUP OF AMERICA ANNOUNCES IT WILL PRODUCE CARS IN CHATTANOOGA; DECISION MARKS COMPANY’S ONGOING COMMITMENT TO NORTH AMERICAN MARKET

HERNDON, Va. (July 15, 2008) — Volkswagen Group of America, Inc. announced today that it will build a U.S. automotive production facility in Chattanooga, Tenn., where it will produce a car designed specifically for the North American consumer and invest $1 billion in the economy. The announcement is an important element of the company’s overall U.S. strategy of connecting with its customers, increasing its competitiveness and tripling its U.S. customer base in the next decade.

“The U.S. market is an important part of our volume strategy and we are now very resolutely accessing that market,” said Prof. Martin Winterkorn, CEO of Volkswagen AG. “Volkswagen will be extremely active there. This plant represents a milestone in Volkswagen’s growth strategy. We will be selling 800,000 Volkswagens in the U.S. by 2018, and this new site will play a key role. This, along with our growth strategy, is a prerequisite for the economic success of the company in the dollar region. We look forward to establishing an important mainstay for ourselves when we become the biggest European carmaker there.”

“This is a significant step forward in achieving our goals in the U.S. market and a clear sign of the Volkswagen Group’s commitment to the North American consumer. Today’s decision is a fundamental part of our new strategic direction in the U.S. and our five-pillar strategy,” said Stefan Jacoby, President and CEO of Volkswagen Group of America. “Chattanooga is an excellent fit for the Volkswagen culture, having an exceptional quality of life and a long manufacturing tradition.”

The company will build the facility in the Enterprise South Industrial Park, located 12 miles northeast of downtown Chattanooga. The 1,350-acre site is 100 percent owned by the city of Chattanooga and Hamilton County and is certified as an industrial megasite by the Tennessee Valley Authority. Enterprise South is adjacent to Interstate 75. Initial production capacity for the facility is anticipated to be 150,000 vehicles, including a new midsize sedan designed specifically for the North American market. Production is scheduled to begin in early 2011.

“I’m enormously pleased by the announcement from Volkswagen Group of America and grateful for the company’s investment in Chattanooga and in the people of Tennessee,” said Tennessee Gov. Phil Bredesen. “I believe Volkswagen chose Tennessee because of our shared values, our commitment to innovation and our strong respect for the environment. This project will have a significant impact on the economy of Tennessee and the region for decades to come.”

“I couldn’t be more pleased that the spirit of partnership between the state of Tennessee, Volkswagen and the government and business leadership of Chattanooga and Hamilton County has resulted in this significant investment in Enterprise South,” said Matt Kisber, commissioner of the Tennessee Department of Economic and Community Development. “Volkswagen’s investment in this community means the hard work and dedication demonstrated by people at the state and local level to create one of the best business climates in the country is paying off.”

“We started with a vision of transforming an idle Army facility into the source of thousands of family-wage jobs,” said Hamilton County Mayor Claude Ramsey. “Over the last 14 years, I’ve worked with four different city mayors as well as county commissioners, city councilmen and countless others in overcoming barriers and objections to that plan. Today, we stand with our new friends from Volkswagen to make a historic announcement that will create new opportunities for our community for years to come.”

“Volkswagen and Chattanooga have a lot in common,” said Chattanooga City Mayor Ron Littlefield. “Both are serious about environmental sustainability and 21st Century manufacturing.”

Environmental responsibility is a core value of the Volkswagen Group. The company’s focus on sustainable mobility and environmentally responsible manufacturing are right in line with Chattanooga’s strong environmental commitment. As an expression of this shared commitment, the state of Tennessee, Volkswagen and Chattanooga-area organizations are partnering to distribute two saplings for every tree displaced by the project. The new trees will be planted by local school children.

According to United States Sen. Bob Corker, who was mayor of Chattanooga when the city and Hamilton County acquired the land and established Enterprise South as an industrial park, the Volkswagen announcement represents a new chapter in Chattanooga’s success story. “Through twists and turns, our community has maintained focus, invested wisely and exercised tremendous effort and energy in recruiting a major employer to Enterprise South. The breaking of this final barrier and the realization of the vision to which we have held true will take us to levels we can only begin to imagine,” said Corker.

He continued, “Volkswagen is the very best manufacturer and partner we could possibly have in terms of our shared values, and as a result of their enormous investment, not only will Chattanooga be forever changed, but our entire state will reap great benefits from the new suppliers that this facility will attract to the region. I am proud to have been part of a dedicated team that has worked seamlessly on this effort and celebrate this outstanding achievement for our city and our state.”

United States Sen. Lamar Alexander praised Volkswagen’s decision to locate at Enterprise South, saying, “Volkswagen and Chattanooga, the ideal marriage: one of the world’s most admired companies and one of America’s most livable cities. This decision keeps Tennessee on the road to becoming the No. 1 state in auto jobs. Congratulations especially to Gov. Bredesen, Sen. Corker and Mayors Ramsey and Littlefield for their leadership,” Alexander concluded.

“Over the past seven months, more than 100 Tennesseans at the local, state and federal level have worked odd hours on short deadlines to help us reach this day,” said Trevor Hamilton, vice president of economic development for the Chattanooga Area Chamber of Commerce. “From this day forward, we dedicate ourselves to partnering with Volkswagen to move from construction to production as quickly as possible. We will unify our team with Volkwagen’s to ensure long-term success for the company, our community and the state of Tennessee.”

With the new plant, Volkswagen will bring about 2,000 direct jobs to the area, and will add a significant number of jobs in related sectors. It is expected that these jobs will come from the tri-state area, pulling from the labor force of Tennessee as well as Georgia and Alabama. Volkswagen of America received an attractive, comprehensive package of incentives for the new facility from Gov. Bredesen’s office and the Tennessee Department of Economic and Community Development. The statutory incentives are tied to job creation and capital investment. Additional support includes assistance for public infrastructure and job training, each designed to ensure the local economy best leverages Volkswagen’s investment to benefit the local work force and ensure the facility’s success.

“This area has a deep base of well-trained labor, with excellent engineering and manufacturing programs at the universities and technical colleges,” added Jacoby. “Thanks to the visionary leaders and people of Chattanooga, we’re confident that the values of this area are compatible with our own, and we envision a long and productive partnership.”

Last year, Volkswagen outlined a new strategic direction in the U.S. based on five pillars: product, brand positioning, dealer network, organization and local production. As it moved forward to assess the potential for local production, the company considered many other site options and earlier this year had narrowed its search to Alabama, Michigan and Tennessee.

“We reviewed three excellent sites, all of which had the specific qualities necessary to build a plant in the United States,” said Jacoby. “Both Gov. Granholm and Gov. Riley were strong advocates on behalf of their states and the citizens they represent. This was a difficult decision, but we look forward to continuing our relationships with both states. I thank both governors and their staffs.”

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