In April 2010, Volkswagen announced the first five tenants of a massive supplier park that will be located near the assembly plant and is slated for completion in June. The supplier park itself has been constructed on a grand scale, consisting of two buildings – each more than 223,000 square feet in size and comparable to nine football fields of space.
“Prior to announcing the Volkswagen project in July 2008, the Tennessee Department of Economic and Community Development (ECD) asked the University of Tennessee Center for Business and Economic Research to analyze the economic impact of the project,” recalls ECD Commissioner Matt Kisber. “Dr. William Fox of UT reported that beyond the 2,000 direct jobs to which VW has committed, the ripple effect of VW’s assembly facility would likely create an additional 9,000 indirect jobs and more than $500 million in new personal income for the region.”
To date, Volkswagen is employing more than 700 people in Chattanooga, and the initial projection for direct jobs with the company remains solid. In addition, those jobs created by Tier 1 and Tier 2 suppliers have begun to materialize.
“The progress of construction, installations in the new plant and development of the car are on track,” relates Guenther Scherelis, general manager of communications for Volkswagen in Chattanooga. “Volkswagen has received more than 65,000 applications and is able to hire a highly skilled and highly motivated, excellent work force. Hiring by Volkswagen will continue far into 2011.”
Among those suppliers scheduled to locate at the new supplier park, Chattanooga Seating, a manufacturer of front and rear seats, is expected to generate 140 jobs; Faurecia (EMCON), which makes front and rear exhaust systems, 35 jobs; Magna Exteriors & Interiors, a producer of front and rear fascia, 25 jobs; M-Tek Inc., a maker of headliners and door panels, 40 jobs; and ThyssenKrupp, which manufactures front and rear axles and corner modules, up to 90 jobs. Additionally, a wheel supplier and logistics servicer could add up to 170 more jobs, and others are expected to follow.
“Locating the supplier park on-site is a key component of our plans in Chattanooga and fits perfectly with our philosophy of ‘green city, green plant, green car,’” comments Frank Fischer, chairman and chief executive officer of Volkswagen in Chattanooga. “Being so close to the production process greatly reduces the impact of traditional shipping on the environment and is a highly efficient way to supply our production team with the parts they need when they need them, and the managed facility is convenient for the suppliers as well.”
Having suppliers located at Enterprise South is a necessity to achieve cost savings associated with a a just-in-time (JIT) inventory management system. Having Tier I suppliers providing components needed for manufacturing located a short distance from large manufacturing facilities is standard practice.
Estimates by the company, which were released last fall, indicate that up to 30 suppliers may eventually locate in the Chattanooga area. Currently, more than 40 suppliers operate facilities in Mexico, where Volkswagen has maintained a manufacturing presence since the 1960s, and another 25 are located in the U.S. Midwest. Automotive industry analysts offer somewhat contradicting appraisals of the future locations of suppliers due to economic constraints and existing capacity. While some have said that these companies will locate manufacturing facilities wherever necessary to be closer to an automotive plant, others remain cautious.
According to Dr. C.R. “Buzz” Canup, president of Canup & Associates Inc., a Simpsonville, S.C., firm that conducts site location studies and economic development consulting, jobs are generally classified into three categories: direct, those generated by VW; indirect, jobs created by VW’s presence which would not otherwise be created; and induced, jobs created as a result of the previous two categories – generally not directly related to the VW project, but related to the economic impact of the project.”
Canup acknowledges that the automotive industry has experienced difficult times recently, with sales down more than 30 percent during the last two years. Some auto manufacturers have downsized capacity and decreased production in response. Toyota, for example, has completed the shell of its Mississippi-based manufacturing plant, but has yet to install equipment there.
“On the other hand,” Canup says, “VW and Audi have initiated a major marketing campaign in the U.S. over the past two or three years and envision the Chattanooga plant as an opportunity to gain market share. Conditions over the next 24 months could significantly impact those plans, either positively or negatively, depending on the direction of the U.S. economy. VW and Audi need the North American production capacity, so they may well proceed with plans that were probably developed over three years ago … only time will tell.”
In the UT study, Fox indicated that projected job creation numbers tended to be conservative. Indirect jobs created by Tier 1 suppliers, those which provide products specifically for the automaker, and Tier 2 suppliers, which provide products to Tier 1 suppliers, have, historically, totaled five to seven times those directly created by the manufacturer.
A 2.2 million-square-foot Kia manufacturing facility that recently opened in West Georgia employs 1,200 people; however, 7,500 related jobs have been generated. In Alabama, Mercedes Benz, Honda and Hyundai have, collectively, generated approximately 12,000 direct jobs and more than 25,000 indirect jobs.
Chattanooga officials maintain a positive perspective regarding the current pace of job creation at Volkswagen to date and point to the intense, ongoing activity at Enterprise South. More than 3,000 workers have contributed to the construction of the plant, which encompasses two million square feet, and the expected transition from a concentration in construction employment to permanent jobs is taking shape.
Other companies are locating within the area to support operations of Volkswagen. These companies are providing new job opportunities and expect to expand in Chattanooga. Honigsberg & Duevel Corporation recently located downtown. The company is an international IT service provider with close ties to Volkswagen and the automotive industry. President and CEO Heiko Juerges was quoted as saying, “We hope to provide services not only for VW, but for other companies.”
“I think the pace has been everything we expected, and surprisingly fast considering the economic situation that we have gone through and are hopefully emerging from,” comments Chattanooga Mayor Ron Littlefield. “I don’t really see how we could absorb the employment demands any faster. I know there are people unemployed and struggling to pay their mortgages, but it is a fact that Chattanooga has suffered less than any other comparable city I know of because of the investment that Volkswagen and its suppliers are making.”
The first major supplier of
Volkwagen to announce plans to locate in Chattanooga was Gestamp Corporation, an automobile parts stamping company. In June 2009, Gestamp, headquartered in Michigan and a subsidiary of Gestamp Automocion of Madrid, Spain, disclosed its intent to build a $90 million manufacturing facility at Enterprise South to supply structural components for the new mid-size sedan. Along with that investment comes 230 new jobs.
“I would encourage people to drive out to Enterprise South,” says Littlefield. “I have already talked to many people who I would have expected to drive out there and see for themselves. They can drive past the plant – it isn’t blocked off – and take a look at a two million-plus- square-foot facility that wasn’t there a year ago.
“On April 9, 2009, they put up the first pillar, and now it looks remarkably close to being finished,” Littlefield says. “That space isn’t empty, either. Around 400 robots have been or are being installed. And while the plant has been readied for permanent employment, construction workers have been pumping money into our economy through this entire economic downturn.”
A large percentage of the jobs created by Volkswagen and its suppliers require skilled workers and pay highly competitive wages. According to independent studies, the assembly plant is expected to generate $12 billion in income growth throughout the region.
Even so, the impact of the economic downturn is undeniable, particularly as it relates to the construction of supplier manufacturing facilities.
“We are talking about two different things, direct jobs and indirect jobs,” notes Tom Edd Wilson, president and chief executive officer of the Chattanooga Area Chamber of Commerce. “I don’t think the economy itself is going to have a significant effect on direct jobs. VW will need roughly 2,000 people to run the plant, and those jobs will be generated along the timeline they have already talked about. On indirect jobs, I think they may be a little slower coming because of the recession. The project has changed somewhat because of the pressure the recession has created on suppliers. We will get those jobs. It may take a little longer, but they will be here.
“I believe the recession has created a new model for the way plants will be built going forward,” Wilson says. “The result is that all the variables will take a little longer to materialize. For some suppliers, an alternative may be for their manufacturing plants to stay where they are and utilize warehouse space locally until they can justify building here. So, just the ability to furnish the VW plant with parts will be impacted by recessionary pressures.”
According to Littlefield, the major challenge for Volkswagen has been to construct a new plant in a new location and produce a new vehicle that has never been built before. “Except for some of the management, which has come in from other locations, this means there will be new people working, and we all want to make it a success,” Littlefield says.
“The training center is another thing that people need to see for themselves and realize that it wasn’t there a year ago,” Littlefield continues. “It is training a continual stream of people for the VW plant. The training center is operated by Chattanooga State, and it is geared up to take people where they are now and prepare them to work.
“I have heard the full range of stories from people who were unemployed – some for a very long time – and how happy they are to be given a new opportunity,” he says. “This is not a situation like many of us remember growing up, when we could learn on the job. These jobs require considerable skill, and VW is putting tremendous resources into training and education to make sure it runs well from the first.”
Given the fact that progress continues at Enterprise South – even in the midst of the most challenging economic times that most people can remember – the creation of jobs is becoming a reality. In partnership, Volkswagen, new suppliers, the state of Tennessee and the city of Chattanooga are delivering economic development that other areas would like to have.