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VW Postpones Decision on Tennessee Plant Expansion, 2nd Product

But announcement likely before year-end.

by on Jun.26, 2013

VW says the CrossBlue Concept was designed specifically for the US market.

Volkswagen has some big news for Tennessee – but not the news many had expected.  The German maker has invested another $40 million in the state, about two hours from its sprawling Chattanooga assembly complex, to add a new regional distribution center. But the announcement sidestepped the really big decision many have been expecting.

VW has signaled that it will soon decide whether to add a second product line to the U.S. plant – a move that could lead it to double the size of the Chattanooga facility, expanding capacity to as much as 500,000 units annually.

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“We expect a decision in 2013,” Carsten Kreb, communications director for Volkswagen Group of America Inc. said in an e-mail. But no decision has yet been taken as to whether and, if so, which model this could be built at the plant.

However, it appears almost certain – as TheDetroitBureau.com reported last week – that the Chattanooga plant will eventually produce a version of the CrossBlue Concept, a three-row crossover-utility vehicle that would help expand Volkswagen’s presence in the rapidly expanding CUV market.

A second CUV concept, the VW CrossBlue Coupe.

Jonathan Browning, CEO of Volkswagen’s American division, has said a midsize SUV, which would fall between the small Tiguan SUV and the pricey, five-seat Touareg, is clearly needed in the company’s lineup. It would help VW meet its goal of more than doubling U.S. sales to 1 million by 2018.

Volkswagen unveiled the CrossBlue concept vehicle at the North American International Auto Show in Detroit in January.  It remains to be seen when and where it will be built – as Mexico would be an alternative to Tennessee – but VW officials told TheDetroitBureau.com that the production model will be relatively close in design to the CrossBlue Concept.

The U.S. appears to have the lead in winning the project, noted VW manager Christian Buhlmann, because “it would help stabilize production.” As sales for the Passat sedan, currently Chattanooga’s only product, cool production of the CrossBlue could increase, he explained during an interview in Berlin.

Even if Tennessee is chosen, VW will have several options to consider.  Most importantly, it could add a small line for the crossover in the existing plant or it could build a “mirror” facility essentially doubling the size of the current Chattanooga facility.

There is yet another option: VW has also shown off a second CUV concept, the CrossBlue Coupe. It is also weighing the potential for that product and may yet have to find a production base for that five-door crossover.

(For more on VW’s CrossBlue concepts, Click Here.)

The new VW distribution center in Chattanooga.

In the meantime, VW continues to bolster the infrastructure required for more sales in the U.S. with the $40 million Southeast Regional Distribution Center (SERDC) in Roane County, Tennessee. The 459,000-plus square-foot facility will be used for distributing domestic auto parts to global markets for the Chattanooga-made Passat.

The center will begin as a redistribution center to service warehouses and will later expand to include a parts distribution center. The redistribution Master Depot will support the U.S., Canada, Mexico and Germany. The parts distribution operation will help improve service parts order delivery times to over 110 dealers in the surrounding regions.

“This new facility serves as tangible proof of the clear commitment that Volkswagen Group of America has to meeting the needs of our dealers and our growing customer base,” said Anu Goel, Vice President of Parts and Vehicle Logistics, Volkswagen Group of America. “Our continued investment in the U.S. market affirms that Volkswagen Group of America is dedicated to the communities in which we do business.”

Volkswagen Group has already announced plans to invest more than $5 billion in North America over the next three years in new products, technologies and infrastructure aimed at helping the company reach its long-term goals for the region. A major expansion of the Chattanooga assembly plant could push that figure up closer to the $6 billion mark.

“Focusing on growth in existing companies is an important part of our strategy, and we appreciate the additional investment in our state,” said Tennessee Governor Bill Haslam.

Paul A. Eisenstein contributed to this report.

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One Response to “VW Postpones Decision on Tennessee Plant Expansion, 2nd Product”

  1. Jorge M. says:

    VW isn’t even close to using it’s current production capacity in CHAT so it’s odd that they would even consider doubling their capacity to 500K units annually. Price and customer perceived function satisfaction will determine the sales potential of additional SUVs or CUVs for VWGoA.

    VW U.S. has addressed their major hurdle with sticker price but they have a long ways to go with product quality and the customer ownership experience, especially with the U.S. dealer network. Having unique U.S. only models presents real issues for a Euro car maker for replacement parts as many components are supplied from vendors. With VW’s low volume sales of the U.S. spec Passat and potentially other U.S. only models, this can become a real burden for suppliers, resulting in high component pricing and vehicle costs.