VW to build new crossover in U.S., add 2,000 jobs

$900 million expansion to include design, development center

The new, mid-sized VW crossover is based on the CrossBlue concept vehicle shown at the 2013 Detroit auto show.

UPDATED: 7/14/14 11:23 am ET -- adds UAW reaction

WOLFSBURG, Germany -- Volkswagen AG will assemble a new family-hauling crossover at its plant in Chattanooga and invest $900 million to expand the factory in a push to double U.S. sales of VW-brand vehicles by 2018.

Production is slated to begin in late 2016 at the Chattanooga plant, Volkswagen’s sole U.S. assembly site, where it builds the Passat mid-sized sedan. Volkswagen will invest $900 million in the project and add about 2,000 jobs at the plant, CEO Martin Winterkorn said today in a press conference near the company’s headquarters here.

VW will also open a North American vehicle design and development center in Chattanooga to be staffed by about 200 engineers to better cater its vehicles to the North American market, Winterkorn said.

Winterkorn said the initiatives reflect VW’s long-term commitment to the North American market.

“We are now launching the second phase of the Volkswagen campaign in the U.S.,” he said in a statement. “With the midsize SUV, the expansion of the Chattanooga plant and the new development center, the focus is on the wishes of the U.S. customer.”

In prepared remarks, Winterkorn said, “Our big objective is clear: By 2018, the Volkswagen brand wants to sell about 800,000 vehicles per year in the U.S.”

Last year, VW tallied 407,704 U.S. sales, a 7 percent decline from 2012. This year’s sales are down 13 percent in a U.S. market that continues to expand.

The decision to expand in Chattanooga also shows that the U.S. South remains competitive in the eyes of overseas auto executives despite the ascendancy of Mexico, where luxury marques BMW, Mercedes-Benz and Audi have all announced plans to start production by 2020.

The new, mid-sized VW crossover is based on the CrossBlue concept vehicle shown at the 2013 Detroit auto show. It was developed specifically for the U.S. market using Volkswagen’s new MQB toolkit.

The seven-seat CUV will fill a gaping hole in VW’s U.S. vehicle lineup, where it is expected to compete against vehicles such as the Honda Pilot, Ford Explorer and Toyota Highlander.

The new crossover is key to VW’s growth plans. The overall U.S. market is expanding on demand for crossovers, pickups and SUVs — where VW’s lineup is thin.

In his remarks, Winterkorn said the new crossover will be “large, attractive and with many high-tech features on board.”

VW Group of America CEO Michael Horn has said that he sees the large crossover becoming one of VW’s four core U.S. models, along with the Jetta compact sedan, the Passat and an Americanized heir to the Tiguan compact CUV.

Even before the CrossBlue’s unveiling in early 2013, the crossover was expected to be built at the Chattanooga plant, which opened in 2011 with an annual capacity of 150,000 vehicles and employs about 2,500 people.

Frank Fischer, who led the Chattanooga plant until March, told Automotive News last year that building an assembly line for the new crossover would increase the plant’s capacity to 250,000 units per year.

Tennessee Gov. Bill Haslam and officials from Tennessee’s economic development agency offered about $300 million in incentives for VW to build the plant in the state and hire more employees.

But the decision became tangled in politics around a contentious UAW vote, as Haslam warned workers that voting for union representation would make it harder for the state to attract businesses. Talks between VW and the state were put on hold, but resumed after line workers narrowly rejected UAW representation in February.

The state gave VW a new offer of tax breaks, training and infrastructure improvements also worth about $300 million, the Frankfurter Allgemeine Zeitung newspaper reported in June, citing unidentified VW sources.

In his remarks, Winterkorn thanked Haslam, Sen. Bob Corker (R-Tenn), Chattanooga Mayor Andy Berke and Hamilton County Mayor Jim Coppinger for their work related to the plant.

The opening of the Chattanooga plant marked VW’s first U.S. production since the closure of a Westmoreland County, Pa., assembly plant in 1988. VW’s only other North American assembly site is a nearly 50-year-old factory in Puebla, Mexico, that builds small cars such as the Jetta, Beetle and Golf.

The UAW, which created a members-only union local in Chattanooga after losing an organizing effort surrounded by controversy in February, welcomed the news.

"The UAW knew that withdrawing its objections to February's tainted election, in consensus with Volkswagen, would expedite the company's decision on the new product line,” Gary Casteel, UAW secretary-treasurer, said in a statement. “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.”

 Gabe Nelson contributed to this report.

You can reach Ryan Beene at autonews@crain.com

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