Volkswagen Waltzes Into Tennessee

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Leaving the Rust Belt

Chattanooga, looking to replace some of the textile industry jobs it has lost, presented VW with a compelling plant site. Off Interstate 75, the state and city had prepared a 1,350-acre "megasite" complete with its own exit and interchange off the highway, industrial utilities, and connecting rail line. The short-line rail tracks that roll into the site connect with both CSX and Norfolk Southern freight lines. "We have been pursuing an opportunity like this for a number of years, and we're ready," says Trevor Hamilton, vice-president of economic development at the Chattanooga Chamber of Commerce.

Officials declined to give any specifics about the incentives the state, city, and county offered. Jacoby, Volkswagen of America president, said the VW site assessment team was impressed with many "intangibles" about Chattanooga, including its livability, sustainability focus, mountain and river setting, and environmental record.

While a boon to Tennessee, VW's decision is another blow to America's rust belt—Wisconsin, Michigan, Ohio, Pennsylvania, Indiana—where Detroit's three automakers have been closing plants. Despite the ready workforce in those states, foreign automakers have mostly opted to build greenfield plants far away from the organizing bases of the United Auto Workers union. Toyota is building a plant that will make Prius hybrids in Mississippi where Nissan already has a plant. BMW's plant is in South Carolina. Kia Motors' new plant is in Georgia. But it's Alabama, which also was in contention for the VW plant, that has scored the most auto-related jobs in the last decade—30,000-plus. None of the foreign-owned plants, except for Mitsubishi's Illinois plant, has been organized by the UAW, and that arrangement dates back to when it was a joint-venture plant with Chrysler.

Volkswagen is now in the process of moving its U.S. headquarters from Auburn Hills, Mich., to Fairfax County, Va. The company has long bristled at being located in the shadow of Detroit's Big Three, and said it was moving to be closer to its customers in a coastal market.

This is not the first time VW will be building vehicles in the U.S. In the 1970s, the company opened a plant in Westmoreland, Pa., to build Rabbits and small Rabbit-based pickups. It had planned to open a plant in Sterling Heights, Mich., in the 1980s. But with its sales plunging, the company moved to shutter the Rabbit plant and sold the Sterling Heights location to Chrysler. Clearly the German carmaker hopes its newest American venture will meet with a better fortune.

Kiley is a senior correspondent in BusinessWeek's Detroit bureau.