Volkswagen Awards a New SUV and $600M to Chattanooga, Tennessee

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It was a big day for Volkswagen of America (VLKAY.PK) on Monday.

While still struggling to crack the code of the U.S. market, Volkswagen announced that it would be building a new SUV — based on the CrossBlue concept, pictured above — will be built at its plant in Chattanooga plant in Tennessee. The announcement means millions for the state of Tennessee, and also that Volkswagen is taking another shot at boosting its lackadaisical U.S. sales numbers.

“The Chattanooga-built midsize SUV will allow us to fulfill the wishes of our dealer network, bringing new customers to our showrooms and additional growth for the brand,” Michael Horn, President and CEO Volkswagen Group of America, said in the company’s statement. “We are eager to be entering this growing vehicle segment with a world-class, seven-passenger SUV from Volkswagen.”

Volkswagen will be committing $900 million, including $600 million at VW’s factory in Chattanooga, Tennessee, to build the seven-seat unit. Production is slated to begin at the end of 2016; Chattanooga is also where VW builds its Passat midsize sedan. VW also plans to invest $7 billion in North America by 2018, in order to almost double the namesake brand’s annual U.S. sales to 800,000 vehicles and become more than a niche producer, Bloomberg said.

The benefits for the state don’t stop there, though, as VW has pledged to add some 2,000 new positions to build the new vehicle. In return, Tennessee has agreed to offer the company about $300 million in tax breaks, anonymous sources told Germany’s Frankfurter Allgemeine Zeitung last month. 

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“The United States of America is and will remain one of the most important markets for Volkswagen. Over the past few years, we have achieved a lot there. We are now launching the second phase of the Volkswagen campaign in the US. With the midsize SUV, the expansion of the Chattanooga plant and the new development center, the focus is on the wishes of the U.S. customer. This is also a strong signal for the US as an industrial and automobile production location. The Volkswagen brand is going on the attack again in America,” said Martin Winterkorn, Chair of the Board of Management for VW AG in the statement. 

While the American auto industry has grown by leaps and bounds in the last couple of years, Volkswagen’s American prospects haven’t panned out as well. The reserved, simplistic styling of it’s vehicles has been cast off as bland next to its more reinvigorated competition, and sales in June sank 22 percent over the year-ago quarter. The industry at large, however, grew 4.2 percent.

The plant in Chattanooga was built in 2011, and has the capacity for 150,000 vehicles. The addition of the SUV’s assembly line would then increase the plant’s capacity to 250,000 units per year, Automotive News said. 

VW currently produces the Touareg, a luxuriously appointed three-row SUV. But with a base MSRP of around $44,000, it’s hardly affordable for most Americans; it sits about $12,000 higher than the average transaction price for new vehicles ($32,281 in early June, as per Cars.com.) It’s a terrific and capable car, but with the new vehicle, VW is likely shooting for the Highlander and Explorer crowd, which sees its vehicles moving in the $30,000 range.

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