published Wednesday, June 5th, 2013

Study: VW plant's impact on Chattanooga area better than projected

Kathy Armour, left, and Michelle Rolin assemble reusable containers for the auto parts industry at the Montara facility near Bonny Oaks Drive and Highway 153.
Kathy Armour, left, and Michelle Rolin assemble reusable containers for the auto parts industry at the Montara facility near Bonny Oaks Drive and Highway 153.
Photo by John Rawlston.
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VW PLANT BENEFITS

• Direct jobs at plant -- 2,415

• Total employment -- 12,400

• Annual income -- $643.1 million

• Annual state tax revenue -- $31.2 million

• Annual local tax revenue -- $22.3 million

Source: UT Center for Business and Economic Research

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    Chanee Baker installs a tunnel shield to the chasis of a Volkswagen Passat on the production line.
    Photo by Tim Barber.
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When Volkswagen employee Lon Gravett looks at the Chattanooga assembly plant, he sees not just cars but opportunity.

Despite the recent layoff of 500 temporary workers, there's a chance for more jobs -- both on site and off -- fueled by the massive factory and its suppliers, he said.

"I see a greater economic impact," Gravett said on Tuesday.

A new University of Tennessee study shows that VW's plant beat most expectations made in 2008 when the $1 billion project was announced.

VW has spurred more than 12,400 direct and indirect jobs through 2012, the study said. That's nearly 1,000 jobs more than the 11,477 that were predicted in 2008.

While VW received about $577.4 million in state and local incentives five years ago, the study estimates the carmaker generates income of $643.1 million annually and boosts state and local tax revenues by $53.5 million a year.

Five years ago, the income boost was put at $511 million annually, about $132 million less than the amount in the UT study released Tuesday.

However, yearly tax revenues were pegged at $55 million a year in 2008, $1.5 million more than the figure in the UT report.

Auto factories have large economic spin-offs, or "multiplier" effects, because so much of their business is done with suppliers, said Dr. William Fox, who directs the UT Center for Business and Economic Research and performed the study.

"This is a facility that just keeps on giving," said Fox, who compiled the report for the Chattanooga Area Chamber of Commerce. "These are annual impacts and will continue year after year."

GERMANY TRIP

Chattanooga leaders are pushing for more.

Mayor Andy Berke and Hamilton County Mayor Jim Coppinger were in Wolfsburg, Germany, on Tuesday wooing VW officials to build an SUV in Chattanooga, along with the Passat sedan.

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    Frank Fischer is the CEO of Chattanooga Operations for Volkswagen.
    Photo by John Rawlston.
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Frank Fischer, who heads VW's Chattanooga operations, said the mayors' meeting with Christof Spathelf, head of group production planning for VW, at the automaker's headquarters "shows their commitment to get another product in Chattanooga."

Fischer said it appears that a decision on whether to build a new SUV and where it will be made likely is set for the second half of 2013 with Chattanooga and Mexico the finalists for the project.

"We're very hopeful Chattanooga will get it, but you can't tell," he said. "If we were to decide, it already would be here."

Ron Harr, the chamber's chief executive, said he didn't think economic incentives were part of the mayors' discussions in Germany because those are typically handled at the state level. But, he said, the SUV decision isn't all about numbers.

"It's about people who work together," Harr said. "There has been a great collaboration between leaders at VW and the community. We'd love to continue that."

SUPPLIERS

Fox said VW's impact is seen not just at the plant, but from the 17 new suppliers have moved into the Chattanooga area since 2008. He said VW is spending $230 million on supplier parts in Tennessee, considerably more than the carmaker's $159 million annual payroll on workers.

However, the head of a Washington, D.C.-based group that studies subsidies to companies questioned some of the UT numbers.

Greg LeRoy, executive director of Good Jobs First, said the study's number of indirect jobs to direct VW slots is too high.

The study put direct VW jobs at 2,415, not including about 300 temporary ones, and indirect posts at 9,995. LeRoy said the usual ripple affect is 1.5 times the number of direct jobs rather than four times the figure.

Also, he said that, while it's common for the greatest number of new jobs to be among suppliers, Tennessee isn't Michigan or Ohio in terms of density of companies servicing the auto industry.

In addition, LeRoy wondered if the $577.4 million in state and local incentives provided VW isn't low. He said a new study by the group shows that incentives for Nissan's plant in Canton, Miss., were originally put at $295 million, but it estimates the real number at $1.3 billion. LeRoy said a lot of credits given Nissan weren't accurately priced at the time.

"It makes me and us wonder if some of the same things are happening in the VW deal and those for other assembly plants," he said.

However, Fox said the multiplier related to the auto industry is much greater than other business segments. He said that, on average, those employed or paid directly from VW make just under $66,000 annually in total compensation.

He also said he has been involved in other auto assembly plants coming to Tennessee, and what officials have seen is that the jobs impact was much bigger than originally forecast. The UT official noted VW pledged in 2008 to bring 2,000 jobs and it has already exceeded that number.

VISIBILITY BENEFIT

Fox said that in addition to jobs and economic impact, VW's plant gives Chattanooga a lot of visibility across the country.

"That's visibility you just can't buy," he said.

Fox also cited the environmental leadership at the plant, such as in its state-of-the-art paint shop and solar park.

This spring VW announced it was laying off about 500 temporary workers. Company executives blamed slower-than-expected growth in Passat sales and said they're doing away with a third production shift at the factory.

Still, the company expects 2013 Passat sales to exceed last year's by about 5 percent. The company sold more than 117,000 Chattanooga-made Passats last year, and it set a record for the vehicle in the U.S. The plant produced 150,000 cars in 2012.

Contact Mike Pare at mpare@timesfreepress.com or 423-757-6318.

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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