Volkswagen Emissions Scandal Could Put Tennessee Plant Expansion in Tough Spot

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Researched by Industrial Info Resources (Sugar Land, Texas)--Volkswagen AG's (Wolfsburg, Germany) emissions scandal is prompting Tennessee government officials to voice concerns over the impact on the automaker's Chattanooga plant and the future of expansion projects. Industrial Info is tracking a $600 million expansion at the Chattanooga facility.

The 1.9 million-square-foot plant currently produces the Passat model, and rolls out an estimated 150,000 vehicles per year. With the expansion, which is set for completion in the end of 2016, the plant would produce a new seven-seater, midsize sports utility vehicle (SUV) for the U.S. market. The project includes expansions to the body shop, technical center and assembly finish shop totaling 538,000 square feet. The project would double production to 300,000 vehicles per year. Volkswagen also plans to build a new $300 million research center.

In connection with the Volkswagen plant expansion, Gestamp North America, part of Gestamp Automoción (Madrid, Spain) plans to kick off a $120 million expansion project in October at its automotive hot stamping plant in Chattanooga, with the construction of a 180,000-square-foot manufacturing facility to make new parts, including external metal skin, for the planned Volkswagen SUV. Completion is set for fourth-quarter 2016.

Volkswagen has announced it will set aside $7.3 billion to cover the costs connected to the ongoing diesel emissions scandal, in which the company acknowledged installing software on auto computer systems allowing them to cheat on emissions tests. However, the ultimate cost of the scandal could be much more. The software could affect up to 11 million vehicles, according to news reports. Luxury car maker Audi, whose parent company is Volkswagen, has said 2.1 million of its cars were equipped with the same software.

The situation has prompted concerns by government officials in Tennessee that the scandal's cost could crimp Volkswagen's expansion plans.

According to the Chattanooga Times Free Press, Governor Bill Halstom told reporters recently that his "primary concern is getting Volkswagen back to where they're in a mode to sell cars... Because if they're not selling cars, those 2,000-plus people who are working in Chattanooga's life is going to be different."

According to the newspaper, state and county governments have committed to more than $260 million in incentives for the new SUV production line.

Tennessee State Senator Bo Watson, R-Hixson, said he was hoping to meet with Volkswagen officials to review the situation, according to news reports.

Worldwide, Industrial Info is tracking 14 active Volkswagen projects worth $3.52 billion.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.