Ed McCallum

Volkswagen AG stands to reap big savings if the German automaker builds an American assembly plant that may land in Chattanooga, experts say.

Building in the United States has become a bargain, said Ed McCallum of industry site consultant McCallum Sweeney of Greenville, S.C.

The reason is the lower value of the dollar versus the euro, the European currency used by nearly all the nations on that continent. Since January 2003, the value of the dollar has dropped by about a third against the euro.

“From an investment standpoint ... your capital costs are lower” in the United States, Mr. McCallum said. “That’s an advantage for the Europeans.”

Meanwhile, German industry newsletter Automobilwoche said Saturday that Alabama likely will be the home of the new plant, beating two other states. The the effect of currency exchange,” she said.

But, Ms. Bratina said, currency is just one reason for a new plant. The company also wants to be closer to its customers, she said.

“We see a potential U.S. facility allowing us to be more responsive to the marketplace,” Ms. Bratina said.

The euro’s strength is making cars assembled in Europe much more expensive to buy in the United States. Experts say that leaves European carmakers with two unappealing options: coping with smaller profit margins or raising prices. But hiking prices on vehicles in the slower auto market is considered a challenge.

In addition, the dollar’s low value is seen as helping drive the compressed time schedule in which Volkswagen wants to have a plant operating. The company said it plans to start production in late 2010 or early 2011 to take advantage of the savings generated by the weak dollar.

Tracts in Chattanooga; near Huntsville, Ala.; and in southcentral Michigan are seen as finalists for a possible $1 billion VW plant that eventually could employ 2,000 workers.

For weeks, crews have cleared land and graded property at Enterprise South industrial park in Chattanooga with plans to spend more than $1 million in short-term site preparation.

Volkswagen’s board of supervisors is expected to make a decision on a plant by midmonth. However, a German auto magazine has said the company’s top management could reach a decision this week.

Aaron Bragman, a research analyst for Global Insight in Detroit, said the dollar versus euro is “a big motivator” for Volkswagen to build a U.S. plant. Mr. Bragman said Volkswagen already has stopped shipping certain models to the United States.

“They’re not making any money on them,” he said.

Mike Randle, who follows the automobile industry for Southern Business and Development magazine, said VW is making some good cars but is hammered by the weak dollar.

“Volkswagen is not like Mercedes Benz or BMW, where vehicles are priced $60,000 or $70,000,” Mr. Randle said. “VW vehicles are not as high-priced, and it costs them a much bigger share of their profit margins to ship those cars to the U.S. from Europe.”

VW AMBITIONS

Jim Bruce, president of site consulting firm Bruce Facility Planning Consultants in Norcross, Ga., said the currency situation aside, there are many other reasons VW wants to be in the United States.

“The U.S. is a good, cost-effective place to build many kinds of things,” he said. From the States, VW can service anywhere from the Panama Canal to the North Pole, Mr. Bruce said.

Also, Mr. Bruce said, the United States is a huge and growing market.

“There are potentially massive markets in Mexico,” he added.

VW wants to challenge Toyota Motor Corp. and to do so it needs a bigger presence in the United States, experts say.

“They’re taking square aim at Toyota,” said Mr. Bragman. “They want to be a global player.”

But VW needs to sell more vehicles in the United States and that requires an American plant to do so profitably, he said.

“You can’t import everything,” Mr. Bragman said.

Staff writer Dave Flessner contributed to this story.

Comments