Rodger B. Holley

Before the first Volkswagen employee is hired in Chattanooga and more than two years before vehicles roll off the line, VW already is giving a boost to the local economy.

Despite the slowing economy nationally, local bankers and business leaders said economic confidence in the region took a big jump up on Tuesday when Volkswagen announced plans to build a $1 billion auto assembly plant at the Enterprise South Industrial Park.

“The Volkswagen announcement didn’t put any more money in people’s pocket Tuesday, but a lot of people immediately saw the investment opportunity and potential for the future,” said Roger Tudor, executive director for the Associated General Contractors of East Tennessee, a Chattanooga-based organization. “This is giving people a lot of opportunity to dream about a better future for Chattanooga.”

Volkswagen’s announcement Tuesday of its plans to build an automobile assembly plant in Chattanooga is the largest new manufacturing investment in the city’s history and comes in an industry with the biggest economic benefit for a region.

Local slowdown at bay?

Activity surrounding the VW plant could quell growing talk of a slowdown in the local economy, said Frank Schriner, First Tennessee Bank’s Chattanooga president.

“I definitely feel that — even if the national economy keeps slipping — we’re stabilizing,” he said. “This couldn’t come at a better time.”

Dr. William Fox, director of the University of Tennessee’s Center for Business and Economic Research, said Volkswagen is likely to begin building its plant later this year at the time the economy is projected to be at its worst.

“This will obviously help soften the effects of the downturn and in the long-run will certainly add to the economic growth of the entire Chattanooga region,” Dr. Fox said.

Automobile assembly jobs are among the highest-paying manufacturing jobs and auto assembly plants generate the biggest economic gains because they typically draw more jobs from supplier industries than they directly employ, Dr. Fox said.

VW will employ about 2,000 workers but the plant is projected to generate even more jobs at suppliers to the assembly plant. In total, the direct, indirect and spin-off jobs from the VW plant could generate more than 14,000 jobs, said U.S. Rep. Zach Wamp, R-Tenn.

“This will literally transform the economy of this area,” Rep. Wamp said.

“Enormous ripple effect”

The impact of the announcement will go far beyond the dollars invested and the new jobs added, said Craig Holley, president and chief executive of CapitalMark Bank & Trust.

“It will cause an enormous economic ripple effect that will spread throughout the region, and banking will be one of many sectors that will benefit,” he said.

For the banking industry, VW’s presence could translate into additional loan and deposit opportunities from all the business and individuals directly impacted by the new plant, Mr. Holley said.

The investment comes as Chattanooga’s economy continues to slow. Employment in metropolitan Chattanooga fell by 1,420 jobs from May 2007 to May 2008, boosting the area’s jobless rate from 3.6 percent to 5.2 percent in the past year, according to the latest figures from the Tennessee Department of Labor and Workforce Development.

“This couldn’t come at a better time for our industry,” Mr. Tudor said. “The market is beginning to soften, but the construction of a new auto assembly, plus all of its suppliers, gives us a lot of work for the future.”

The local real estate and housing markets also could see a boost as a result of VW’s announcement with the inventory of new homes being absorbed in to the market, said Rodger B. Holley, chairman and chief executive of First Security Group Inc.

The jobs are expected to mean increases in wages, which could mean more people spending money. Even the local transportation network, from the airport to a high-speed train, could benefit from VW’s presence here.

“This type of announcement has got Chattanooga on everybody’s radar screen and I think the impact you’ll see with the airport, the travel — across the board from churches, hospitals, schools — will benefit from this type of announcement,” Rodger Holley said.