published Thursday, April 19th, 2012

Audi picks Mexico for plant site

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State and local officials spent little time lamenting Audi's decision Wednesday to build a plant in Mexico rather than Tennessee as they look to future growth by Volkswagen.

Chattanooga Mayor Ron Littlefield said he expects VW's need to grow its local operations will rival Audi's plans and do so as quickly.

"I'm confident Volkswagen will need or use all the land we've set aside for them," said the mayor, citing the 1,200 acres on which VW has an option in addition to its existing plant at Enterprise South industrial park.

Audi, VW's luxury-car unit, announced Wednesday it will put up a factory in Mexico at a site it will choose later this year. The company, which is aiming to unseat BMW in terms of premium sales worldwide, said it will make a sport utility vehicle, reportedly the Q5, by 2016.

Bill Hagerty, state economic and community development commissioner, said Tennessee competed for the project.

But he cited trade issues beyond the control of state and local officials.

"Our understanding is that a portion of this new facility's output will target certain South American markets," he said in a statement. "Tariff treaties between Mexico and certain countries there made a material difference. We understand Audi had to choose the location that best fit its business needs."

A top VW official told Automotive News recently that trade among Mexico, Europe and the Mercosur bloc (Brazil, Argentina, Uruguay and Paraguay) is duty free. Also, Audi can avoid a 10 percent duty levied on cars built in the United States and shipped to Europe.

J.Ed. Marston, the Chattanooga Area Chamber of Commerce's vice president of marketing, said while the business group vied for the Audi plant, it's optimistic about VW's future growth in the city.

"We still feel strongly that we've got a terrific opportunity going forward," he said. "As VW grows in North America, it only makes sense that they'll build in Chattanooga."

Hagerty, too, said it's looking forward to future growth as sales of the Chattanooga-made Passat speed ahead.

"We firmly believe Tennessee is the best place for any automotive manufacturer considering relocation or expansion of their manufacturing operations," he said. "We will continue to aggressively pursue those projects and make our case."

Littlefield said VW already is leaping ahead in terms of growing production and jobs in Chattanooga. This year, the German carmaker has announced plans to put 1,000 more jobs in its local assembly plant, boosting its workforce to about 3,500 employees. It also plans to raise production capacity to 170,000 vehicles from 150,000 a year.

"We expect that trend to continue," Littlefield said.

VW officials have said that the Chattanooga plant could be expanded to produce 500,000 vehicles.

Rupert Stadler, chairman of the board of management for Audi AG, said in a statement that Mexico is an established car-making location and offers "an excellent economic basis for Audi production operations."

"Good infrastructure, competitive cost structures and existing free trade agreements played a significant role in the choice of Mexico," said Stadler.

about Mike Pare...

Mike Pare, the deputy Business editor at the Chattanooga Times Free Press, has worked at the paper for 27 years. In addition to editing, Mike also writes Business stories and covers Volkswagen, economic development and manufacturing in Chattanooga and the surrounding area. In the past he also has covered higher education. Mike, a native of Fort Lauderdale, Fla., received a bachelor’s degree in communications from Florida Atlantic University. he worked at the Rome News-Tribune before ...

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