VW’s Tennessee Plant Boosts U.S. Prospects

Volkswagen AG (VOW)’s $1 billion investment in a new factory in Tennessee positions the company to boost sales as U.S. auto demand continues to recover from an almost three-decade low.

VW announced it would build the plant in Chattanooga in July 2008, months before the U.S. economy crashed and was smart to maintain the plan so they could take advantage of the recovery, said Kim Kill, director of sustainability and economic development strategies at the Center for Automotive Research in Ann Arbor, Michigan. The factory is scheduled to open tomorrow.

Automakers have announced more than $17 billion in factory investments for the U.S. and Canada since the beginning of 2010, including $2 billion by General Motors Co. (GM) this month, according to the center. Total sales of cars and light trucks may rise to 13 million this year, the average of 18 analysts’ estimates compiled by Bloomberg. Light-vehicle sales last year climbed to 11.6 million from a 27-year low in 2009.

“The idea that they’re going to be able to localize a significant amount of their volume is going to significantly reduce their costs and dramatically improve their ability to be positioned on a more competitive basis,” Mike Jackson, head of North American vehicle forecasting at IHS Automotive in Northville, Michigan, said in an interview in New York.

VW said the United Auto Workers union may try to organize the German automaker’s workers. UAW President Bob King has said he expects to organize at least one non-union auto plant in the U.S. this year. King has said he’s begun preliminary discussions with some of them and has declined to identify which companies may be targeted.

UAW Organizing

An organizing attempt may be made “at some point of time, probably,” Frank Fischer, head of the factory, said in an interview. “This is up to our employees.”

VW is a possible target for the UAW because it’s new, said Gary Chaison, a professor of industrial relations at Clark University in Worcester, Massachusetts. The Chattanooga site is Volkswagen’s first assembly plant in the U.S. since 1988.

“All of the established plants the UAW has made efforts at and has been unsuccessful,” Chaison said in an interview. “A new plant would be a very tempting target for the UAW.”

Michele Martin, a UAW spokeswoman, declined to comment.

VW Chief Executive Officer Martin Winterkorn plans to boost the company’s U.S. sales to 1 million vehicles a year, including Audi and other brands, by 2018. The Chattanooga plant will assemble the Passat midsize car.

Chattanooga residents dropped off fruit baskets and flowers at the automaker’s temporary offices, said Guenther Scherelis, a plant spokesman.

Tennessee Moonshine

One German executive said his neighbors introduced him to Tennessee moonshine and another said he was impressed by the size of crowds at University of Tennessee football games.

“When we came down here, we were rockstars,” said Thomas Loafman, the plant’s director of purchasing, who was part of the team that selected the site and set up the operations.

VW picked the city partly for its available workforce, and people have been excited about the jobs, he said. More than 85,000 applied to work at the plant, with 35,000 seeking hourly production jobs during a three-week period, said Hans-Herbert Jagla, the plant’s executive vice president for human resources.

The assembly positions pay $14.50 an hour, rising in three years to $19.50, plus performance bonuses, he said.

‘Treat Them Fair’

“We treat them fair, we provide a lot of benefits, like retirement and health care,” he said. The plant will have a fitness center, and a health-care clinic for workers is being built across the street.

While U.S.-based automakers pay UAW workers $28 an hour, contracts agreed to in 2007 allow some new hires to be paid $14 an hour.

VW already has hired 1,700 people and aims to employ more than 2,000 as production increases, Jagla said. The average age of the production workforce is 36, he said. Some of the workers have manufacturing experience and few have worked in an automobile plant, Jagla said.

The training center, the first building to open on the complex, overlooks the plant and includes voluntary German classes and a snack shop called Das Café.

Each worker spends three weeks in training, including a week learning about VW and its corporate culture and test- driving the company’s vehicles, and six to nine weeks in on-the- job training.

While VW has been in contact with the UAW, it hasn’t received an “official letter,” Jagla said.

Employees’ Voice

“The UAW has an approach all over the U.S.,” he said. “We will have a voice for all of our employees here and we will stick to the law how we treat a possible attempt.”

The UAW has struggled to organize foreign automakers’ operations in the U.S. South, Chaison said.

“There’s no tradition of unionization, and because with a new plant, there are no grievances that are being brought up,” he said. “This is their first chance at a well-paying, solid, industrial manufacturing job.”

Employees doing early work on the assembly line said they were attracted by the stable jobs and competitive compensation.

“There are good opportunities for advancement,” Bryan Thomas said of his new job. “I’m only 19, so it’s a good place to start a career.”

Hamilton Smith, 43, said he was excited to hear that VW was coming to town. The UAW hasn’t approached him about organizing, he said.

‘Fresh Start’

“It’s a fresh start with a new company, a new company that is going to provide stable jobs for the community,” Smith said during a break on the line. “I think it’s a company that will continue to grow here.”

Tonya Higgins, 40, said she left a job at a steel manufacturer for VW because it seemed like a better opportunity. The community likes VW, she said, noting that she gets “a million questions” from people when they learn she works at the plant.

“This is a clean place to work; where I was working before wasn’t clean at all,” she said. “I think the pay is good compared to other places, and it has a chance to grow.”

To contact the reporters on this story: Tim Higgins in Detroit at thiggins21@bloomberg.net; Andreas Cremer in Berlin at acremer@bloomberg.net

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net; Chad Thomas at cthomas16@bloomberg.net

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