Volkswagen Reassures Tennessee Lawmakers on Chattanooga Plant

  • Emissions scandal prompts hearing on committment to expansion
  • Automaker received $486 million in incentives for job promises

Volkswagen AG is committed to its expansion in Tennessee even after the emissions cheating scandal that rocked the company, said Christian Koch, chief executive officer of the automaker’s Chattanooga unit.

“Our company has apologized to our customers and the public, and I am here to expand that apology to you,” Koch told state lawmakers Thursday at a hearing near the company’s plant. “I am also here today to assure you that we intend to meet our commitments in Tennessee.”

He said the U.S. plant remains critical for the Wolfsburg, Germany-based company, which has said it’s reviewing the need for facilities worldwide.

The hearing was devoted to the emission scandal’s potential impact on jobs and the state’s options if the automaker fails to meet employment promises made in exchange for hundreds of millions of dollars in state and local financial assistance.

Volkswagen employs 2,400 at its Chattanooga plant, which builds Passat sedans, including -- until recently -- the diesel version. The automaker admitted last month that it installed software in diesel vehicles that ensured emissions met U.S. pollution standards in tests, despite being many times higher under actual driving conditions.

Diesel Passats

Koch said the Chattanooga plant has gasoline-fueled engines on order to replace diesel ones. Diesel Passats had accounted for as much as 25 percent of the plant’s output, he said.

Senate Speaker Pro Tempore Bo Watson, who has opposed the automaker’s efforts to unionize its Chattanooga plant, led the hearing. He said lawmakers want to ensure that the company’s job estimates are accurate, given the deception on emissions.

“We have an obligation to ensure that the information is accurate,” Watson said. “It becomes a little more important now, in this situation, because we have a company that misbehaved.”

Volkswagen posted its first quarterly loss in 15 years Wednesday. The company has set aside 6.7 billion euros ($7.5 billion) to pay for the costs of the scandal. In anticipation of fines, recalls and a drop in U.S. sales, Volkswagen slowed production at one of its biggest engine factories in Germany and froze hiring at its unit there that makes car loans, the company said this month.

The incentive package that helped lure the Volkswagen plant to Chattanooga was one of the largest of its kind, according to Greg LeRoy, executive director of Washington-based Good Jobs First, which tracks and criticizes such development deals. The incentives were among several large deals that Southern states have offered in recent years to land factories from Nissan Motor Co., Toyota Motor Corp. and other automakers.

Beating Alabama

In 2008, Volkswagen chose Tennessee over Alabama and other states as the site for its $1 billion plant. The state, Chattanooga and surrounding Hamilton County offered $485.5 million in cash and tax incentives to lure the plant. Last year, the automaker announced a $600 million expansion to build a mid-size sport-utility vehicle starting in 2016. The state approved a $165.8 million grant plus as much as $12 million in training costs for the expansion, which promised 2,000 additional jobs. Local governments offered an additional $52.5 million for infrastructure.

Although Volkswagen has already met its commitments for the first incentive package, there are protections and clawback provisions if the automaker fails to keep its expansion promises, according to Randy Boyd, state development commissioner. The company will have to meet an average of 80 percent of its jobs goals in the three years that begin in 2020, he said.

For Tennessee, the stakes are high. Including supplier activity, the plant produced 12,400 full-time jobs, $643.1 million in annual income and $53.5 million in taxes each year, according to a 2013 study by the University of Tennessee in Knoxville. A review of the expansion projected that it would generate $372.6 million annually with 9,799 positions when fully operational.

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