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McClatchy-Tribune  07/14/2014 10:08 AM ET
Volkswagen picks Chattanooga for expansion despite labor strife [Detroit Free Press :: ]

July 14--German automaker Volkswagen today confirmed that it will add 2,000 jobs at its Chattanooga, Tenn. plant to build a new mid-size crossover, ending speculation about the automaker's future production plans for the three-row vehicle amid questions about whether the factory will be unionized.

The company said it will invest $900 million to launch production of the all-new crossover by the end of the 2016. The vehicle will become the second vehicle in production at the plant, joining the Passat sedan.

The State of Tennessee added a lucrative sweetener to close the deal: a $165.8 million grant for expanding the plant and a $12 million grant for training new workers.

"This mid-size SUV will be built by real Americans," Volkswagen AG CEO Martin Winterkorn said in a press conference live-streamed from Chattanooga. "This is a strong signal for the commitment of Volkswagen to the region."

The announcement comes as the UAW is charting a path toward unionizing the plant, after workers rejected a proposal to make the factory the first foreign automotive assembly plant in the U.S. in February. The plant currently employs about 2,500 workers; some are contract employees.

The union last week said it would form a UAW chapter and invite workers to join voluntarily. Volkswagen has not pledged its cooperation with the effort.

Despite the labor uncertainty, Volkswagen still chose Chattanooga as the production site for its new crossover. Tennessee and a location in Mexico were widely viewed as the company's two options.

The vehicle, based on the CrossBlue concept revealed at the 2013 Detroit auto show, will give Volkswagen another major asset in its effort to becoming the largest automaker in the world by 2018.

But it comes as Volkswagen is mired in a deep slump in the U.S., with sales down 13% in the first half of 2014 despite a 4% increase for the industry.

"We have slowed down our pace," Winterkorn said. "With the Chattanoonga plant and the U.S. Passat we have the latest sound foundation for growth. We know this alone is not sufficient. For this reason we are now taking the next step."

Volkswagen also said it would hire 200 engineers to staff a new R&D operation co-located with the plant.

In a show of unity, Volkswagen executives were joined by several key political figures who sparked a dustup when they sought to block the UAW from organizing the plant in February.

Republican Gov. Bill Haslam and U.S. Sen. Bob Corker, R-Tennessee, praised Volkswagen's commitment to Tennessee without mentioning the UAW, which narrowly lost the vote in February.

Corker emphasized at the time that Volkswagen would follow through with the investment if workers rejected the union.

"The commitment you're making is going to affect the lives of people for years to come," Corker said.

He added: "I was very grateful I was able to play a role in seeing this through," but the workers' "commitment to excellence is the real reason" the company chose Chattanooga.

The state incentives had something to do with it, too.

The expansion grant is devoted to the "costs associated with site development and preparation, infrastructure, production equipment acquisition and installation, and facility construction," Tennessee said in a statement.

The expansion "signifies Volkswagen's deep and long-lasting commitment to the region," Haslam said at the press conference.

Free Press Business Writer Brent Snavely contributed to this story.

Contact Nathan Bomey: 313-223-4743 or Follow him on Twitter @NathanBomey.


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