Weak euro keeps VW luxury brand Audi out of Tennessee

By G. Chambers Williams III, The Tennessean


By G. Chambers Williams III, The Tennessean

Volkswagen's luxury brand Audi won't be building any of its models at the new VW assembly plant in Chattanooga anytime soon, the company said, citing market conditions and a weak euro against the U.S. dollar.

There was never any promise that Audi would make use of the $1 billion facility that Volkswagen will open early next year in East Tennessee to manufacture a new midsize sedan for the U.S. But the German automaker earlier had indicated that its premium brand might consider using part of the plant.

At least for the near term, that's not going to happen now, said Jeff Kuhlman, chief communications officer for Audi of America. "The issue is that it's not the right time for Audi to consider production in the U.S.," he said.

While the company's sales and market share have been rising, Audi still sold only 83,000 vehicles in the United States last year, and its best-selling U.S. model, the A4 sedan, accounted for just 40,000 of that total. To make a U.S. assembly line profitable, the sales volume of the vehicle made here would have to be much higher than 40,000.

"We definitely will continue to monitor our brand development, and when it gets to where we have critical mass, we would get serious about considering Chattanooga or perhaps another (U.S.) plant," Kuhlman added.

Audi also is no longer publicly pushing a goal of increasing its U.S. sales to 200,000 vehicles a year by 2018. That was part of former Volks-wagen of America Chief Executive Stefan Jacoby's plan, announced at the Chicago auto show in 2008, to build Volkswagen and Audi's U.S. sales to a total of 1 million units annually within 10 years.

Under Jacoby's plan, sales of the Volkswagen brand were to have grown to 800,000 a year by 2018; the company sold just over 213,000 VW cars and SUVs here last year.

But Jacoby left Volkswagen last week apparently to become chief executive of Swedish carmaker Volvo under its new Chinese owner, Zhejiang Geely Holding, which is expected to close a deal to purchase the brand from Ford Motor Co. later this year.

"Mr. Jacoby is no longer with us, and we're not putting out a growth target," Kuhlman said. "We're focused on profitable growth, keeping incentives as low as possible. While we understand the target the company has announced, we have to recognize that if we do it strictly with incentives, that would defeat the purpose."

Euro plays role in plans

The falling value of the euro is a big reason Audi's German managers decided to drop plans for a U.S. assembly facility. Ironically, it was the strength of the euro in mid-2008 that pushed Volkswagen to build the Chattanooga plant in the first place to take advantage of the European currency's strength at the time. That has disappeared with the global financial crisis, however.

The Chattanooga plant is designed to build up to 150,000 new sedans annually, and the new vehicle's price is expected to be competitive with such best-selling midsize models as the Toyota Camry and Honda Accord, both of which are assembled in the United States for this market.

Audi's announcement isn't surprising, considering the euro's decline and the brand's recent performance in the U.S. market, said George Peterson, president of the California-based industry research firm Auto Pacific.

"We always expected Audi to find a way to build vehicles in the U.S., whether it be in Chattanooga or another Southern state," Peterson said. "I thought Tennessee would have an inside track. But it sounds like Audi has been doing its due diligence, as it very well should, and has concluded now is not the right time to do this."

Separate line needed

One other problem cited by Audi and Peterson is that Audi's vehicles are not compatible with Volkswagen's assembly line. VW mounts its engines sideways, while Audi's go under the hood longitudinally.

That means Audi would need a separate assembly line at the Chattanooga plant, rather than sharing Volkswagen's. Audi could share the paint shop with Volkswagen, but not much else, Audi spokesman Kuhlman said.

Tennessee's Department of Economic and Community Development didn't expect Audi to be part of the deal when it recruited Volkswagen to build the facility on the site of the old Volunteer Army Ammunition Plant, said Mark Drury, assistant commissioner.

"That was never part of the initial discussions between Volkswagen and the state of Tennessee, but there was a suggestion that Audi at some point might choose to come to the Chattanooga site," Drury said. "Currency fluctuations can work both for you and against you."

The Chattanooga VW plant is expected to employ about 2,000 workers when it reaches full production

There might also be some appeal for a MT A6, as Audi has a rally heritage. Grab the Subie fan boys who are looking to graduate to something more luxurious.

Top-line Subies are not exactly stark inside, though I admit their interior trim lacks some of the jewel-like fit/finish of Audi A4s and up.

subaru and audi interiors are very different, lol.