VW to spend $900 million at Tennessee plant to build new SUV

(Reuters) - Volkswagen AG (DE:VOWG_p) said on Monday it would invest about $900 million to build a mid-sized SUV at its U.S. plant in Tennessee starting in late 2016, nearly doubling the factory's work force.

The German automaker chose to build the seven-passenger, three-row SUV at its plant in Chattanooga, Tennessee, instead of at its facility in Puebla, Mexico. About $600 million of the $900 million will be invested in Tennessee, VW said.

The decision, coming five months after the United Auto Workers union lost an election to represent the plant's workers, means that Volkswagen will create up to 2,000 jobs at a plant that now employs almost 2,500 people.

"All of this marks the start of the second phase of VW's U.S. offensive," chief executive Martin Winterkorn said at a press conference at the carmaker's Wolfsburg base. "The United States will remain one of the most important markets for VW."

VW's $1 billion factory in Chattanooga started operating in 2011, building a cheaper, roomier version of the carmaker's mid-sized Passat sedan specifically designed for American customers.

The German group has expanded to become the world's second-largest auto manufacturer last year, only trailing Toyota Motor Corp. (T:7203) thanks to sturdy sales growth in China, its biggest market.

But those gains contrast with VW's pains to raise the presence in the U.S. of its core passenger-car brand which has been grappling with a reputation of lower value for money.

Troubles at the VW brand, which has been slow to plug gaps in its U.S. model lineup, led to a change in the carmaker's U.S. leadership where Jonathan Browning quit as regional chief in January after about three years.

VW declined to reveal what kind of incentive package Tennessee provided for the expansion.

VW officials would only say unit production of the SUV would be in the six-figure range. It will be sold in North America and other markets, and built on the same vehicle platform as the Passat. The Chattanooga plant built 130,000 Passat cars at its peak in 2011.

The mid-sized SUV market in the United States has grown to more than 1.4 million vehicles from about 750,000 in 2009, VW said.

The job expansion will include about 200 positions in research and development and design in Chattanooga as the company moves to better cater to the needs of the North American market, VW said.

Michael Horn, VW's new U.S. chief said the carmaker will further expand its model range and has plans for more "derivative models," without being more specific.

The company also will appoint a team of product management officials in the second half of this year at the automaker's U.S. headquarters in Herndon, Virginia.

From 2014 to 2018, VW will invest more than $7 billion in the United States and Mexico. The company said its goal is to deliver 800,000 vehicles in the United States by 2018.

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VW also said on Monday that Bernd Osterloh, chairman of the Groups Works Council of Volkswagen, would join the board for the automaker's American operations in a move it said would give its work force more of a voice in strategy planning.

VW officials said the decision on the SUV was not related to the election loss in February by the United Auto Workers union. Some anti-union forces had said the loss cleared the way for the Tennessee plant to get the investment, while UAW officials said VW workers were improperly influenced by anti-union statements made by Tennessee Republican lawmakers and outside interest groups.

The UAW said last week that it had formed a local union in Tennessee for workers at the plant, taking another run at representing some of the employees. VW officials said they had no agreements in place with the UAW regarding its latest efforts.