The Wall Street Journal’s (May 25,2011) headline “VW Evaluates US Audi Plant” is more good news for American manufacturing. With its new $1 billion plant opening 2 days ago in Chattanooga, VW aims to triple its US auto sales.The
complex is designed to build 150,000 Passat sedans and can be expanded to 300,000 units.
Why the American plant and why Tennessee? VW believes it cannot compete against rivals Ford, GM, and Toyota without the cost benefits from a factory here. The firm has lost money in the US for a decade (with cars made in Germany) because of unfavorable exchange rates. The new plant makes it possible to lower the price of the mid-sized Passat by an amazing $8,000 –down to $20,000, in line with competitive vehicles. The VW plant is paying $14.50 an hour, half of what auto workers make at older Toyota plants and at unionized Ford, GM, and Chrysler facilities. VW can now also produce 85% of its parts locally, lowering the impact of the currency translation.
With the new plant barely open, VW is already considering building its luxury Audi line in the US for the 1st time, for the same cost reasons. The firm thinks it can double Audi sales to 200,000 units with a facility closer to its customers. (Businessweek features a similar article called “VW Rediscovers America” ,May 21-27, 2011).
Discussion questions:
1. Why is VW interested in expanding its manufacturing to the US?
2. Why did it select Tennessee for its first US site?