Sept. 21--Volkswagen AG, a pillar of Tennessee's automotive economy, is trying to push past the dieselgate scandal and polish its brand in America around a fresh set of high-tech autos.
Just before heading to a major auto show in Frankfurt, VW brand chief Herbert Diess told an inhouse Volkswagen publication the automaker's future compass will point directly to the new technology -- electric cars powered entirely by batteries.
"In the old world it is Toyota, Hyundai, and the French carmakers. In the new world it is Tesla," Diess said, referring to a nimble California manufacturing startup influencing Detroit, Shanghai, Stuttgart and Tokyo with its electric-car ambitions.
VW's $1.7 billion Tennessee assembly plant likely will be assigned production of some of these new models, probably with gasoline variants early on, although imports from Europe and Mexico are also possible, automotive analysts suggest.
"VW Chattanooga would love to be the plant producing electric vehicles in North America but the company has not announced yet where they will go," VW Chattanooga spokesman Scott Wilson said, adding, "We are definitely in the running."
What the future holds for the 600,000-employee global automaker, which held bragging rights of world's largest carmaker for a spell this year, isn't clear. What is clear is the immediate past shook the leader of industrial Germany of its dream for fast growth.
Just as the American southeast was falling into the recession, Volkswagen swept into East Tennessee in 2008, drawing on public incentives from state and local officials reported to now have surpassed $700 million.
While its 3,500-employee car assembly plant was called an economic mainstay for greater Chattanooga, sales of the Passat mid-size sedan made there have fallen short of VW executives' forecasts. Car reviewers like the Passat. Motor Trend magazine named the 2012 model Car of the Year. But many drivers have ignored the 4,550-pound sedan.
Spacious by European standards, the Passat ranks mid-pack in an American market swooning over 6,500-pound pickups. Emboldened by cheap oil from the North American fracking fields and bargain-level interest rates, buyers have been able to pack trucks and sport-utility vehicles with expensive interiors and options.
Aware of the American craving for crossovers -- hatchback cars ginned up to resemble SUVs but lacking a truck's heftier frame and suspension -- VW added the Atlas crossover to Chattanooga's line up this year.
VW sales pros were relieved. The designers finally had provided a worthy rival to middle-market rides like Toyota Highlander, Honda Pilot and Nissan Rogue. The latter, made south of Nashville at Smyrna, Tenn., led all mid-size crossover models in sales this year for several months.
Even with Atlas and Passat rolling out of the plant, though, VW Chattanooga has made fewer vehicles than the plant was scaled to produce. The recent $900 million expansion opened room for Atlas production, lifting the assembly capacity to 250,000 vehicles per year from 150,000. This averages out to full production capability of almost 21,000 vehicles each month.
In August, the plant assembled 5,714 Passat and 2,807 Atlas models, or 8,521 total, reports market researcher Motor Intelligence of Mahwah, N.J. Volumes are expected to rise as Atlas output steps up. However, some analysts including Stephanie Brinley say full use of VW Chattanooga's assembly capacity remains years away.
"Relative to production at Chattanooga," Brinkley, senior automotive analyst at IHS Markit in Southfield, Mich., said in an email, "we forecast that VW will see production reach about 226,000 units in 2021, as they add new variants to the plant.''
That's a slow ramp up for any automaker. No one suggests the auto parts suppliers who followed VW to the country's Dixie auto region with some 8,500 jobs are going to close.
But maintaining employment levels could be a "challenge," said Kristin Dziczek, director of the industry, labor and economics group at the Center for Automotive Research in Ann Arbor, Mich.
With "no big jump in exports from that plant (and)... given that the market is flattening, it seems like a challenge to me,'' Dziczek said in an email.
Production forecasts made by market researchers such as IHS are used by auto parts companies, sometimes to double-check future production anticipated by customers. If a Detroit automaker, for example, tells a supplier it expects to make 200,000 copies of a certain car, but a market researcher forecasts 150,000 sales, the supplier will then decide whether to invest immediately in equipment and people capable of turning out the full 200,000.
IHS forecasts VW Chattanooga output will total about 157,000 vehicles next year.
Wilson, the VW communications director at Chattanooga, said he doubts layoffs are imminent.
"We have never laid off a VW employee at VW Chattanooga," Wilson said. "We didn't lay off anyone even when we lost 30 percent of the build when we lost the diesel. We've met challenges before. I think the future looks very bright for VW Chattanooga."
Stay the course
Despite the slower ramp up at Chattanooga, no one expects the strategists in Stuttgart to do what VW did the last time expectations in America were dashed.
Late to respond to the rush into the United States of nimble cars designed in Japan in the wake of soaring oil prices, VW execs in 1988 closed the company's lone U.S. assembly line south of Pittsburgh at New Stanton, Penn. Known as the Westmoreland plant, it had opened in 1978, endured labor-management turmoil and suffered from models considered less upmarket than Honda's spritely Accord sedan.
While the automaker kept a major operation in Mexico, Volkswagen didn't restart a U.S. assembly until VW Chattanooga came on line.
By then, government officials in the United States and throughout Europe were about to learn what VW executives had done. While Asia and America was leaning toward hybrid-electric cars like Toyota Prius, diesels were considered Europe's gold standard for fuel efficiency. Then VW engineers tinkered with their diesels and cheated on government emission rules.
Once this was divulged publicly, VW and other automakers who indulged in the cheating were roiled. Execs were fired and demoted. Those in charge were distracted by the controversy.
VW still managed to keep firmly to its product development cycle, Brinley said, although other analysts suggest Atlas could have come out of the gate earlier to meet soaring American demand for crossovers had there been less turmoil in Stuttgart. Is this true? VW says no.
"The decision to produce the Atlas was made well in advance of 2015," said Mark Gillies, spokesman for Volkswagen of America Inc. in Herndon, Va., referring to the year the diesel crisis mounted.
At any rate, rocked by the dieselgate scandal, slow to respond to America's unbridled demand for sport-utilities and pickup trucks, VW is making sure it does not miss the mark on what looks like the next sure bet -- electric cars.
"A company like Volkswagen must lead, not follow," VW chief executive Matthias Mueller said recently as he showed off electric car plans under the code name Roadmap E. "We are setting the scene for the final breakthrough for e-mobility."
Tennessee taxpayers have bet heavily on VW's success. It's not certain what Roadmap E will deliver the Chattanooga plant in terms of new product. But as Americans warm to electric power, Chattanooga will likely get the call.
Aware that Tesla is trying to create a mass-market for electric cars, VW execs pledged to spend $24 billion by 2030 gearing up an electric fleet and surpass Tesla in zero-emissions performance. That's not to say all 300 models and variants sold in various countries will run on electric motors. Plans call for 80 electric models including the Volkswagen I.D. Crozz, a crossover exepcted to debut in 2020 or 2021, and something not seen on the highways since the hippie days of yore -- a tiny VW van.
"The Microbus has long been part of the California lifestyle," Diess told reporters recently. "Now we're bringing it back by reinventing it as an electric vehicle."
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