Despite a freeze on sales of most of its diesel-powered cars, and a series of lawsuits that could cost it billions of dollars, Volkswagen says it won’t scale back an ambitious plan to expand its Chattanooga assembly plant, a move that will cost it $900 million to add production of a new SUV, adding 2,000 new jobs in the process.
“The United States continues to be one of the most important markets for Volkswagen, and our commitment to Chattanooga and the state of Tennessee is clear proof of that,” said Michael Horn, president and CEO of Volkswagen Group of America.
There had been speculation that VW might scale back the project in the wake of a scandal triggered by revelations it had cheated on emissions tests by installing a so-called “defeat device” in 482,000 diesel-powered vehicles sold in the U.S., and 11 million sold worldwide. The maker has already set aside $7.3 billion to cover the cost of the scandal, and Matthias Mueller, CEO of parent Volkswagen AG, has just outlined a five-step recovery plan.
Among those steps, VW must “learn from” its mistakes, put more emphasis on its customers, realign its structure and address problems within its basic corporate culture.
“We have to look beyond the current situation and create the conditions for Volkswagen’s successful further development”, said Müller, who replaced disgraced CEO Martin Winterkorn shortly after the U.S. Environmental Protection Agency revealed VW’s subterfuge last month. “Volkswagen will emerge from the current situation stronger than before,” he insisted following a meeting of senior management at VW headquarters in Wolfsburg, Germany.
(Retired bankruptcy judge appointed to consolidate VW lawsuits, push for settlement. Click Here for the story.)
Among the changes Mueller plans to implement, a key step will be to move away from the “Faster, Higher, Larger” strategy of his predecessor. Volkswagen, under Winterkorn, had set out a goal of being the world’s largest automaker by 2018. In fact, it nudged past Toyota to take the sales crown for the first half of 2015, only to slip back into second place during the third quarter.
VW must emphasize profits and margins, as much as sales volumes, according to the new CEO.
That said, VW still seems intent of growing demand, especially in the U.S. market where it has lagged behind the overall industry recovery. One key reason has been the lack of the right products, especially in the booming SUV segment. That is something VW wants to correct by moving forward with the Chattanooga plant expansion and the addition of a new utility vehicle based on the well-reviewed CrossBlue concept.
“The Chattanooga plant is a core part of our strategy in North America,” emphasized U.S. Chief Executive Horn.
(Click Here for details about VW’s $1.83 billion loss last quarter.)
There had been a number of questions raised in recent weeks about whether the project would move ahead. For one thing, VW officials have warned there will have to be a number of cutbacks to help pay for the diesel emissions scandal. How much it will eventually cost is far from certain, but Credit Suisse recently issued a report suggesting the figure could climb to $87 billion.
VW has said it will be far less. But in the U.S. alone, the maker is facing over 300 lawsuits filed by consumers, a criminal investigation by the Justice Department, and as much as $18 billion in fines by the EPA.
There were also signs Tennessee lawmakers might pull back on incentives for the Chattanooga plant. But that concern vanished during a cordial hearing this week, during which Christian Koch, the head of operations at the factory, again apologized for the diesel scandal, and declared, “We intend to honor our commitments here in Tennessee.”
If anything, VW could wind up putting still more focus on the U.S. market – where it has lagged for decades – under the new plan outlined by CEO Mueller. A key element of his 5-step strategy is to give more authority to individual regions, rather than use a command-and-control strategy centered in Wolfsburg.
(To find out how the diesel scandal could end up costing VW $87 billion, Click Here.)
That could be good news for the company’s U.S. operations, even if VW is forced to make cuts in other parts of the world.