Volkswagen Group took another step toward achieving its ambitious goal to sell 1 million vehicles in the U.S. by 2018 when it announced another production boost at its Chattanooga, Tenn., plant. Volkswagen, which has invested $4 billion in the facility that opened last year, will add 800 new jobs, bringing total plant employment to 3,500 workers.
The added employees will boost production of the 2012 Volkswagen Passat. Sales of the midsize sedan introduced last fall are booming. February was the biggest month for Passat sales, which totaled 8,189 units, since August 2003. The plant has been working overtime daily just to keep up.
Still, Volkswagen executives say that's not enough. Despite strong sales, demand for the car is running at about 10,000 a month, far more than what is being produced, company officials say. Indeed, the Passat is flying off dealer lots. The Passat's average days-to-turn — the time from a car arriving at a dealership to when it is sold — is a scant 24 days, 55 percent lower than the industry average in the segment, which was at 54 days, according to Edmunds.com's analysis. That certainly suggests much stronger demand for the car than is being filled and for demand for most of its competitors, which include the top-selling Toyota Camry, Honda Accord, Nissan Altima and Ford Fusion.
In fact, sales of midsize cars, generally, are hot. Midsize cars accounted for 18.5 percent of total U.S. vehicle sales in February, surpassing the compact segment as the top-selling vehicle segment in February. The midsize segment is expected to strengthen even further with nearly all major players having new versions this year.
"Quite plainly, we need more Passats to meet the market demand, and I'm glad that we can respond so quickly by adding staff in Chattanooga," said Jonathan Browning, president and CEO of Volkswagen Group of America, of Thursday's announcement. The additional workers will allow formation of a third team so the plant can operate on an innovative schedule that extends its weekly production capacity while reducing the amount of overtime work for the existing team members.
The Chattanooga plant, which opened last year, is the centerpiece of Volkswagen Group's plan to grow sales in the U.S. to 1 million vehicles a year by 2018. The automaker wants to sell 800,000 Volkswagen-brand vehicles and 200,000 Audi models. The lofty sales goal announced before the recession raised skeptics' eyebrows, especially in light of the German automaker's spotty commitment to the U.S. over the years. Volkswagen closed its only U.S. plant in Westmoreland, Penn., in 1988. By 2001, its sales peaked at 355,648 vehicles. By 2009, sales dropped to their low point of 213,453 vehicles. Last year, the company sold 324,400 vehicles in the U.S.
By Edmunds.com's calculations, Volkswagen needs sales to grow at an average of nearly 14 percent a year through 2018 to achieve 800,000 units in 2018; Audi would have to grow by about 8 percent annually to reach 200,000 units. That's an aggressive trajectory, especially when compared with Hyundai, for instance, that has been on a steady and phenomenally fast growth path but has yet to reach 800,000 vehicle sales a year. Hyundai sold a record-setting 645,691 vehicles in the U.S. in 2011.
But it will take more than added sales of the Passat for Volkswagen to hit 800,000 sales in 2018. Volkswagen says there are no near-term plans to add any more vehicles at the Chattanooga facility beyond the Passat. But, clearly Volkswagen will need to produce even more vehicles in the U.S. to expand its product offerings. One vehicle the German automaker desperately needs in the U.S. is a competitive entry in the fast-growing small crossover segment, a category that now accounts for one in 10 vehicles sold in the U.S. A concept displayed at the recent Geneva auto show could be just the ticket.
The Volkswagen Cross Coupe is an expressively designed small crossover vehicle, shown previously at the Tokyo auto show as a plug-in hybrid but in Geneva with a more likely diesel engine paired with electric motors at the front and rear. Were a Cross Coupe vehicle to go into production, Volkswagen likely would use its newly developed architecture called the MQB platform, which will underpin numerous Audi, Volkswagen, Skoda and Seat models in the future. The architecture is not only flexible enough to accommodate a range of models but also a variety of engines, and it is less expensive to produce. The platform debuts on the new Audi A3, unveiled in Geneva, followed by the upcoming Volkswagen Golf. It eventually will be used for the next-generation Volkswagen Passat as well as the replacement for the Volkswagen Tiguan.
The Tiguan needs replacement as it just isn't getting the job done in the super hot U.S. crossover segment. Compare Volkswagen with Honda, a good target for Volkswagen as the focus on engineering excellence and buyers are similar. About a quarter of the Japanese automaker's U.S. sales come from the Honda CR-V. The Honda CRV was America's best-selling small crossover in February, a title it has alternated with the Ford Escape during 2011. Honda sold 24,759 CR-Vs in February, just shy of the total Volkswagen sold of Tiguans for all of 2011.
A big problem for the Tiguan is the fact that it is built in Germany, making it subject to high production costs and disadvantageous exchange rates. The result is its transaction price is between 13 and 18 percent higher than other small crossover vehicles. In December 2011, for instance, Tiguan's average transaction price was $29,823, compared with $25,722 average of its competitors, according to Edmunds.com's calculations.
Volkswagen executives strongly hinted that something in the vein of the Cross Coupe — an expressive small crossover — likely will come to the U.S. And presumably it will be built in the U.S.