VW Plans U.S.-Built SUV in Bid to Reverse Slumping Sales

Volkswagen SUV
Carlos Osorio/APVolkswagen executive Ulrich Hackenberg introducing the Volkswagen CrossBlue SUV at the Detroit auto show in January.
By ERIK SCHELZIG and TOM KRISHER

NASHVILLE, Tenn. -- Volkswagen plans to build a new seven-passenger SUV at its factory in Chattanooga, Tennessee, adding about 2,000 factory jobs as it tries to reverse U.S. sales that have fallen for the past two years.

The German automaker announced Monday that it will invest $600 million to expand the factory and set up a new research center that will employ about 200 engineers. The research facility will coordinate products for North America to quickly include customer feedback into planned and existing models, the company said.

The announcement comes after months of political wrangling over the role of organized labor at the factory, which now employs about 1,500 workers and makes only one model, the Passat midsize car.

Production of the new SUV, based on the CrossBlue concept vehicle unveiled in Detroit last year, is scheduled to start at the end of 2016. It gives VW an entry into an important segment of the U.S. market -- the family people hauler.

VW sales fell almost 7 percent last year and are down more than 13 percent so far this year, largely because the company doesn't have competitive products in key market segments. VW had a big year in 2012, with sales rising 35 percent to more than 438,000. But sales fell to about 408,000 last year, and the brand sold only 179,000 through June this year.

"The Volkswagen brand is going on the attack again in America," Martin Winterkorn, chairman of Volkswagen's management board, said in a statement, repeating the goal of selling 800,000 Volkswagen brand vehicles in the U.S. by 2018.

Michael Horn, VW's CEO in America, said seven-passenger, three-row SUV sales in the U.S. have almost doubled since 2009 to 1.4 million a year. He also said the new engineering center will broaden VW's portfolio with more new products.

The company plans to add about 538,000 square feet to the existing factory to build the new SUV.

Negotiations over state incentives for the expansion of the plant hit a snag over a union vote at the plant in February that was narrowly lost by the United Auto Workers. Republican politicians had warned that a vote for the union could have hurt the chances of the Legislature approving more than $300 million in incentives.

The new incentive package wasn't announced Monday, and it's unclear whether ongoing attempts by the UAW to be recognized at the plant will affect legislative approval of the deal.

David Smith, spokesman for Gov. Bill Haslam, said there's no need for a special legislative session to approve the incentives. The state, he said, is providing a $165.8 million grant to help with site development, infrastructure, production equipment acquisition and installation, and building construction. It also is offering a $12 million grant for training new employees, he said.

VW, Smith said, is waiving its right to claim tax credits directly related to the expansion.

UAW Secretary-Treasurer Gary Casteel thanked Haslam in a statement "for extending the state and federal incentive funds necessary to make the economics work for the new product line."

VW wants to create a German-style works council representing both salaried and hourly employees, but can't do so without the involvement of an independent union.

UAW leaders announced last week that they had reached a "consensus" in discussions with Volkswagen and expect the German automaker to recognize the union if they sign up enough workers at the plant.

The union in February suffered a bitter setback in its effort to organize its first foreign-owned plant in the South when workers at the Chattanooga plant rejected UAW representation by a 712-626 vote.

Casteel said last week he is confident VW will recognize the union if it signs up a "meaningful portion" of Volkswagen's workforce in Chattanooga, though he didn't elaborate on what the threshold would be.

Volkswagen spokesman Scott Wilson issued a statement saying that the company has "no contract or other formal agreement with UAW on this matter."

"Just like anywhere else in the world, the establishment of a local organization is a matter for the trade union concerned," the company said.

-Krisher reported from Detroit.


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