Spring 2009

Volkswagen has to build Engines for its Tennessee Plant. Is South Texas the Place?

There’s news in the Rio Grande Valley that a European automaker is close to making a decision on building a large plant in or near McAllen, Tex. If true, who could that be in an economy like this? BMW? Mercedes? Fiat? Volkswagen? Fiat and Volkswagen would be the only two European automakers looking to add North American production in the near future.

It was reported in the spring of 2008 that Fiat was looking for a U.S. location to produce a new model. That quickly changed when reports indicated the Italian automaker was scouting Mexico for a plant. Then Fiat took a 35% stake in Chrysler, which is the kiss of death. Just ask Mercedes. That being the case, why would Fiat still seek a new North American assembly plant when it can set up shop at an idled Chrysler facility? 

Volkswagen? Now that makes sense. Volkswagen is full steam ahead on its Chattanooga, Tenn. assembly plant. In fact, that facility is on the fastest track we have ever seen compared to other assembly plants built in the Southern Automotive Corridor.

VW announced it was building a plant in Chattanooga in the summer of 2008. A large part of the facility will be built by the end of this year. In comparison, Kia announced its West Georgia plant in early 2006 and that Korean auto works won’t be churning out vehicles until the end of this year, or almost four years after it was first announced. Of course Toyota, which announced its newest facility in 2007, has put the brakes on its plant in Tupelo, Miss. even though construction is almost complete.

So why is VW so hell-bent on getting its plant up and running in Tennessee? Maybe because it believes it has a product that will be incredibly attractive to buyers. VW claims it has a sedan, built exclusively for U.S. customers that will get 55 miles per gallon.

According to published reports, officials with the city of McAllen, Tex. have been negotiating with an unnamed automaker for a large project. Those reports also indicate that one of the last remaining hurdles to complete the deal is a competitive incentive package. In fact, lawmakers in Texas are already trying to pass bills that will help land the project. When lawmakers start pleading with state government for money, usually the project is down to its final stages.

So, is the buzz from McAllen a Volkswagen project? Don’t know. But what we do know is this: VW admitted in the fall 2008 quarter that it has been looking at sites in Mexico for a new engine plant. And VW already operates a huge assembly (425,000 vehicles made last year) and engine plant (340,000 engines made last year) in Puebla, Mexico. Add the numbers up and there aren’t enough engines being produced at the Puebla plant, much less for the new plant being built in Tennessee.

Yes, VW needs engines for both its Mexico and U.S. plants. And McAllen, Tex., with a location between the two assembly facilities, just might be where the German automaker will build them.

next