10 Years Later

Don Jackson (center), president of manufacturing for Volkswagen of America from 2008-2012, was heavily involved in the plant’s design.

There is very little that is more satisfying than building a plant that sets new standards for manufacturing and, at the same time, creates jobs that help people enjoy a higher standard of living.

– Don Jackson

In 2008, while the nation was in the throes of the worst global recession since the 1930s, German automaker Volkswagen announced plans to build a 1,400-acre manufacturing facility in Chattanooga. Though the timing seemed precarious, pro-business state legislation, paired with the unwavering commitment of city and state leaders and the charm of Chattanooga, proved too impactful for Volkswagen to pass up.

As the world’s first and only LEED Platinum certified auto plant, the Volkswagen of America facility had an immediate influence on the community. Over $1 billion was committed to building the plant in Chattanooga, and 10,000 jobs were created for the construction phase alone, which began in early 2009. Local firms were awarded contracts that totaled more than $379 million to build and create the most advanced auto manufacturing facility in the United States. From there, Volkswagen began cultivating a workforce composed largely of local men and women, and the first Passat was produced in 2010. By 2011, more than 1,000 employees had been hired as production ramped up and sales began.

Ten years after the wheels were set in motion, we look at how Volkswagen’s presence in Chattanooga  offset a severe downturn, powered the economy after the recession, and established a foundation for future economic growth.

The Great Recession

When the housing bubble burst in 2007 causing substantial loss in value to mortgage-backed securities and derivatives, the world entered the most significant recession since the Great Depression. Banks and financial institutions in Europe and the United States suddenly owed considerably more in debts than they could fund, and bankruptcy for many was inevitable – and swift. 

American households experienced a loss of nearly $16 trillion in net worth, forcing immediate cuts in consumer spending. And with spending taking a nosedive, massive job loss was imminent. The nation’s unemployment rate more than doubled from 4.6% in 2007 to 9.6% in 2010 – 16 months after the official end of the recession. As many as 8.4 million people lost their jobs, with industries like construction, manufacturing of durable goods, and retail trade experiencing some of the most noteworthy losses. Companies across the nation were forced to pull back on investments.

Among these companies was Toyota, the second largest car manufacturer in the world at the time. In February 2007, just before the onset of the recession, the company had announced its decision to build a brand-new, $829 million manufacturing plant in Blue Springs, Mississippi. The announcement had come as an enormous disappointment for both local and state leaders, who had been working tirelessly to bring the company to Chattanooga.

The first Passat car ceremony was held on April 18, 2011.

Recovering and Rebuilding

Recovery from the recession was weak and sluggish nationwide. In fact, it wasn’t until 2011 that the U.S. hit a solid, strong pace of job growth, and the national unemployment rate finally dropped below 9%. But while the world was suffering through the downturn, the ongoing efforts of local leaders and state officials to restore manufacturing and rebuild Chattanooga’s economic engine that once garnered the moniker “The Dynamo of Dixie” began to pay off.

When Toyota elected to go elsewhere in 2008, what initially seemed a devastating blow for the city turned out to be a blessing. Almost immediately, city officials placed the first call to Volkswagen, who had just announced plans to open its first U.S. manufacturing facility since shuttering its Pennsylvania site in 1988.

Volkswagen was the third largest automaker in the world at the time, but to climb in the rankings, the company needed to sell more cars in the United States. Leaders set a sales goal of 800,000 vehicles in North America by 2018, but knew they didn’t have the capacity to build and ship that many from Germany, nor did it make sense financially. So the search for an appropriate site in the U.S. began.

With the goals of establishing a new benchmark for auto manufacturing and implementing best global practices, Volkswagen initially identified nearly 400 site options across the U.S. Thanks to quick action on the part of Chattanooga’s leaders, the city remained top of mind. In the end, the decision was narrowed to Chattanooga, Huntsville, Alabama, and an unnamed site in Michigan.

The city’s location paired with its intangibles – namely the livability, sustainability, and environmental record – eventually won Chattanooga the business, and the plant was announced in July 2008.

Immediately, confidence for an improved local economy was bolstered. Businesses throughout Southeast Tennessee and North Georgia embraced the prospects of a less severe recession and a more positive future economic outlook.

Bringing in the Big Guns

In order to ensure a successful startup, Volkswagen assembled a global world-class executive team to lead the development of Volkswagen of America in Chattanooga.

Don Jackson, a 21-year Toyota veteran, was announced as president of manufacturing. Jackson was responsible for leading the manufacturing team and improving the development  of Volkswagen’s new state-of-the-art North American plant. “Volkswagen was focused on implementing global best practices,” says Jackson. “And I had previously led the successful construction and startup of two facilities, both of which were completed on time, and I had experience meeting quality standards that exceeded the expectations of U.S. customers.”

Immediately, Jackson and other members of the executive team were tasked with developing one of the most technically advanced and eco-friendly facilities in the world. On the 1,400-acre site, which is owned entirely by the city of Chattanooga and Hamilton County and is certified as an industrial mega-site by the Tennessee Valley Authority, the new plant combined the best practices of German plants with additions based on global best practice manufacturing. “After I took the job, I was immediately on conference calls to discuss the design plans,” Jackson says. “We ended up changing the design right away. For instance, in Germany, they have a storage tower of painted bodies waiting to be assembled. We eliminated the large bank of inventory to reduce waste and establish a more lean process. We also changed the overall plant layout just before the concrete footings were installed.”

Construction on the plant began in February 2009. “The timing was very advantageous for local contractors, because they were looking for jobs to keep their workers employed,” says Jackson. “We were able to establish building contracts and put people back to work. There is very little that is more satisfying than building a plant that sets new standards for manufacturing and, at the same time, creates jobs that help people enjoy a higher standard of living.”

The facility, which includes a welding shop, a paint shop, assembly lines, a technical testing center, and training facilities, was built using 33,600 solar panels, best-in-class insulation, energy-efficient lighting, an energy-efficient paint line, and recycled materials.

In 2010, a two-building, 446,000 square-foot supplier park was added on-site. Eight just-in-time suppliers, ranging from Magna to Faurecia, Thyssen Krupp, MTEK, Wingard, and more, were chosen to produce 16 separate components that included seating, exterior parts, tire and wheel assembly, and more at the new park. Additional suppliers opened plants close by.

Ultimately, by 2011, when construction of the plant and supplier park was completed, more than $686 million had been pumped into the city’s recession-era economy.

Across the U.S., business confidence remained at an all-time low. But in Chattanooga, there was a sense of optimism for the future.

Don Jackson poses with Governor Bill Haslam at the 2017 Governor’s Conference. Governor Haslam was integral in VW’s expansion, which was announced in 2014.

Opening the Plant

Toward the end of the construction phase, hiring for the plant began. More than 85,000 people applied for the first 2,000 jobs, which included production team members, management professionals, and skilled team members.

“We took the hiring process very seriously,” says Jackson. “We wanted to make sure we could develop people in the DNA of Volkswagen and train all team members in the manufacturing process to achieve global quality best in class.”

By March 2010, just 13 months after construction on the plant began, 400 employees were working in the facility, in addition to another 600 employed on-site in the supplier park. That same month, the first spot weld on a trial vehicle was completed, and just months after that, the first entire Passat body was finished, assembled, and test driven. By the third quarter, 1,000 employees were on-site each day.

This bump in employment impacted Chattanooga at just the right time. While the United States as a whole was operating at a recession-high 9.6% unemployment, Chattanooga was working at a steadily declining 8.8%.

“One of my proudest accomplishments from my time with Volkswagen was being able to create so many new jobs for employees,” says Jackson.

By 2011, all systems were operational, and the plant produced more than 40,000 units over the course of the year. The following year, the facility’s output more than tripled, with the completion of 150,000. With the plant in full swing, both direct and indirect employment grew to more than 12,000, which equated to $643.1 million in annual income for the state of Tennessee, and additional state and local tax revenues of $53.5 million.

According to Dr. Matthew N. Murray, a professor of economics and the associate director of the Center for Business & Economic Research at the University of Tennessee, “One of the things that has stood out about Chattanooga over the longer term is its strong and vibrant manufacturing sector. Volkswagen has been an important driver for the region’s economy, offering new jobs and the opportunity to develop new world-class technologies.”

Senator Bob Corker speaks at Volkswagen expansion announcement on July 14, 2014.

A Decade of Impact

When Volkswagen of America opened in Chattanooga, its impact was powerful. In 2012, the first year the plant achieved its capacity for production, the locally produced Passat was named the Motor Trend Car of the Year. Chattanooga’s unemployment rate was 7.4%, compared to 8.1% nationwide.

By July 2014, the brand was ready to expand, and leadership announced plans to add over half a million square feet to the facility to produce the Atlas, a 7-seat, midsized SUV, and expand the plant’s output capabilities to 250,000 cars per year. The expansion cost nearly $900 million, almost doubling the company’s investments in the city. The new construction, which was completed in 2016, generated $217 million for the state of Tennessee, and more than 5,300 construction-related direct and indirect jobs. Once completed, the expansion also added approximately 1,800 direct employees, and is expected to be responsible for close to 10,000 new direct and indirect jobs across the state over the next three to five years. These jobs are projected to bring in more than $372 million of income for the state annually. State and local governments will also see an estimated $35.1 million in new tax revenue each year.

The supplier park has also expanded over the last decade as production has increased and currently houses 17 Volkswagen-related suppliers. Other suppliers have since opened nearby plants and expanded in the area to serve Volkswagen. In 2016 alone, Gestamp invested $180 million in Hamilton County, the biggest Volkswagen supplier investment yet, and added 510 jobs. The same year, Yanfeng Automotive Interiors invested $55 million into a new plant for Volkswagen parts, adding 325 jobs.

Now, discussions loom about the possibility of manufacturing Volkswagen’s all-electric SUV in Chattanooga. Called the I.D. Crozz, it is expected to debut in the U.S. in 2020.

The lasting effects of Volkswagen’s decision to open its U.S. site in Chattanooga cannot be overstated. Its development brought with it global attention for the local economy, and the timing could not have been better. Of the nation’s 510 largest metropolitan areas, Chattanooga was one of the 10 fastest recovering areas following the recession, and one of just two outside the state of Texas.

“Our team was extremely proud to open the Volkswagen manufacturing plant in Chattanooga,” says Jackson. “When we came to town, we were met with local and state officials full of dignity, trust, and a can-do attitude. We all agreed to work our hardest to create jobs and positively impact the economy for years to come.”

Senator Bob Corker mimics Jackson’s sentiment. “One of the most meaningful moments during my time in my public service occurred the day I received a call confirming that Volkswagen had chosen Chattanooga,” says Corker. “Not only are thousands of families benefiting from good-paying jobs at the plant, but the investment by Volkswagen also set off a jobs-multiplier effect that has been felt across our state and region. I appreciate Volkswagen’s significant long-term commitment to the hometown and state that I love and look forward to its continued success in the Volunteer State.”

Today, manufacturing represents the largest sector of jobs for the region, due largely in part to Volkswagen continuing to expand, add jobs, and attract suppliers. By providing high-paying, skilled jobs, the manufacturing maven indisputably lessened the severity of the Great Recession for the local and state economy, and its impact will go far beyond its first decade.