Volume 13 | Issue 4 | Year 2010

The Volkswagen Group of America is providing the Chattanooga Choo-Choo new competition as this Tennessee city’s most famous mode of transportation. Located near the upper corner of Georgia and Alabama in the bend of the Tennessee River, Chattanooga is in the fast lane. Volkswagen Group of America has taken advantage of this location with a groundbreaking manufacturing facility built in league with many local suppliers, businesses and partners. Here, the innovative automaker aims to produce a new mid-size sedan for the American family car market segment – its first American-produced vehicle since the 1980s.
The auto manufacturer, looking to become the world’s top number-one carmaker, will offer a car specifically designed to meet the needs of American customers. According to The Wall Street Journal, in the1970s the German-based car manufacturer owned seven percent of the American market and was the top selling import, thanks largely to its quirky Beetle. Also known as “the Bug,” the distinctive car was the company’s signature product. However, the company gradually lost share as Japanese manufacturers adapted more quickly to changing American tastes for comfort and styling. Further, the “Bug” was crushed underfoot when it failed to meet new U.S. pollution control standards. An ill-fated attempt to manufacture in Pennsylvania the Bug’s boxy replacement, the Rabbit, failed with American consumers. An updated Bug aimed at Baby Boomers was not enough to reintroduce the brand. Volkswagen came to see the United States as an afterthought to its core European, Asian and Latin American markets.

But it wasn’t willing to write off a substantial market. This meant addressing certain considerations. However peculiar German engineers may find America consumer’s fascination with drink cup holders, Volkswagen decided that it should and could design and manufacture a car to fit middle-market American tastes. Employing its iconic Bug as a marketing “spokesperson” that emphasized the slogan of “great for the price of good” – and coupled with its top U.S. selling Jetta vehicles that embrace the concept –VW’s American sales are up 20.6 percent this year, according to The Wall Street Journal. The development represents the third largest growth trend behind Ford and Subaru. The U.S. market share for VW has crept up to 2.2 percent, though that still leaves a lot of room for improvement.

The Chattanooga plant in Hamilton County, the first domestic VW plant in some 30 years, is geared to accelerated growth at higher speeds. The new construction will ultimately provide capacity to produce 150,000 vehicles of a larger family sedan. By 2018, the Volkswagen Group of America has set a finish-line goal of 800,000 vehicles a year. The plant design anticipates growth with modular expansion that will compensate for future capacity.

To call this an ambitious goal is an understatement: Decades have passed since a European carmaker managed to produce a mass-market appeal car for U.S consumers. That doesn’t take into consideration the overall decline in the U.S. auto market, which is estimated to have shrunk by about a third and is not expected to rebound from the current economic decline any time soon.

And given economic conditions, American consumers – who review their monthly credit card bills – will no doubt be attracted to a moderately priced mid-sized sedan outfitted to American preferences (those cup holders, of course, but also increasingly standard features once considered luxury add-ons such as premium sound systems with iPod interfaces and Bluetooth connectivity) is exactly where the U.S. market probably has the most potential. In addition, American consumers are more conscious than ever about fuel economy and environmentally friendly “green” technologies.

That is why 30 percent of new vehicles made at Chattanooga will be powered by VW’s TDI Clean Diesel Technology. “While diesel is still not at the forefront of American consciousness, the technology has come a long way,” explains Frank Fischer, chairman and chief executive officer for Volkswagen in Chattanooga. “Today, diesel is much more popular in Europe, both for its fuel economy and low carbon dioxide emissions. Our diesel vehicles have been recognized two years in a row with the Green Car of the Year Award.”

This is one area where VW is trying to persuade American consumers to adopt European sensibilities and forgo their tastes. Given consumer thirst for fuel economy, diesel could easily become a more cost-effective choice over more expensive hybrid technologies. For now, VW is the only domestic manufacturer that offers this choice in the mid-sized category. This translates into a significant competitive advantage, which will help the company meet its goal of gaining greater market share.

Equally important to building green cars is construction of a manufacturing facility using sustainable building practices that will employ equally sustainable technologies in its operations. Located on 1400 acres, and including nearly three million square feet of production space, the plant is bordered by walls insulated with six-inch mineral rock wool panels. This will reduce energy consumption by 35 percent. In addition, a specially designed reflecting white roof will reduce heat absorption, thus diminishing air conditioning needs and generating even more energy savings.

Further, two creeks were restored during construction to enhance animal habitation and vegetation that provides a “wildlife corridor” around the site. “We are instituting a certified environmental management system in accordance with ISO 14001,” Fischer says.

The plant features:

  • An advanced painting process that reduces carbon emissions by 20 percent in the paint shop;
  • Reuse of rainwater for cooling and restrooms, expected to save up to 350,000 gallons of water annually;
  • Low NOx gas boiler burners;
  • Energy-efficient electric motors expected to achieve annual savings of about three million kilowatt hours;
  • Power efficient lighting – T5 lighting system saves more than 20 percent over conventional industrial lighting; LED street lighting saves about 100,000 kilowatt hours per year and reduces “light pollution” in the night sky;
  • A paint shop water efficient “eco dry scrubber system” that reduces water consumption by 25,000 gallons a day; 80 percent of vehicles shipped by rail;
  • An on-site recycling and waste management center that is targeted to eliminate virtually any waste typical for a landfill.

“Volkswagen Group of America is already a leader in green investments, offering low-consumption, low-emission technologies for today’s roads, with the goal to minimize the carbon footprint,” says Fischer, adding that the company continuously improves it production processes to maximize sustainability and minimize environmental impact.

VW has invested $1 billion in the Chattanooga project, an investment that will pay off in a facility designed from the ground up to achieve high quality with the most cost-efficient manufacturing practices essential to success in producing a mid-sized car that is economical but still high performing, providing German engineering and quality made in America.

“All production takes place within a design that provides checkpoints within a 300-foot diameter of one another,” Fischer explains. “People can walk to any checkpoint to quickly resolve any issue. Such a logistically efficient production path eliminates wasted time and expense. Of course, this helps us keep down the cost of the vehicle to consumers by maintaining highest quality.”

The plant’s geographic orientation optimizes flow efficiency. Workers enter from the east. Vehicle assembly begins at the northern end and moves through the plant in a southern direction via automated conveyors – there won’t be a single fork lift in use – until it emerges to be loaded for rail transport at the end of production backbone comprising sequentially logically arranged warehouses, paint and body shops, assembly and test locations.

Another unique feature is the on-site supplier park at the northern end, which opened for business in September. This consists of two 223,200-square-foot buildings, roughly nine football fields of combined space. Tenants of the supplier part include makers of seating, exhaust systems, headliners and door panels, interior and exterior fascia, axles, wheel and tire assemblies. The supplier part, close to the heart of production, allows flexibility, short feedback loops and a reliable, just-in-time supply, Fischer notes.

He adds, “In today’s challenging economy, the fact that our suppliers are willing to partner with us on-site is a strong sign of confidence in our ability to deliver a vehicle that Americans will appreciate for all the features and comforts they have come to expect in a German engineered mid-sized sedan.”

In addition to offering the American consumer a new choice for a family car, VW’ substantially contributes to Chattanooga’s economy. In fact, it represents a boon. Like many cities, Chattanooga has suffered a declining industrial base. But Fischer indicates that the city’s long history of industrial manufacturing is one of the major reasons why VW selected it to jumpstart its American manufacturing capabilities. The city was a foundry town once known as the “Dynamo of Dixie,” and also home to the first Coca Cola bottling plant. Today it is the fastest growing of Tennessee’s four major cities.

The new plant means new jobs, new businesses, and revitalized economic growth. Estimates indicate that the plant will ultimately contribute $12 billion towards income growth in Tennessee and $1.4 billion in the state’s total tax revenues. Contracts awarded to Chattanooga and Tennessee business during construction already total $686 million, with another $230 million in additional construction projects projected over the next 20 years. Indeed, job creation will be a significant factor for Chattanooga’s economic resurgence. VW will directly employ more than 2,000, with another 9,500 employees projected as a secondary effect of the investment.

Fischer says that VW received more than 65,000 job applications for available positions. Even with such an extensive labor pool to choose from, thorough and efficient training is as essential as the plant’s design. “We’ve established a training academy that all employees must complete,” Fischer notes. “We hired our first thousand employees this past August, so we now have a senior leadership team in place that will help us train the class of the next thousand employees. We’re looking not only to develop the skills we need, but also to promote satisfying employee relationships that will result in long-term loyalty.”

The importance of education extends beyond in-house training. VW has contributed $5.28 million in support of Partners in Education in Tennessee, which provides grant funding to local schools and colleges. In addition, the company’s successful effort to achieve a diversified and inclusive workforce was recently recognized by the Urban League of Greater Chattanooga, who awarded the company its Corporate Leadership Award. “We value the diversity of the work teams we create,” Fischer says. “We hire men and women from a wide range of ethnicities and cultural backgrounds. This ensures that we reflect community values, not just in the work we do in making cars, but as engaged members of the larger business and city communities.”

Fischer adds that VW also supports local charities and that the company matches employee donations up to $5,000.

The Chattanooga plant is heading into its final laps, scheduled to be fully operational in 2011.

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