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Foreign car companies target American South

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Volkswagen hope their Chattanooga plant will help them to triple US sales

By Franz Strasser
BBC World News America, Chattanooga, Tennessee

States in the south-eastern US have become an attractive location for foreign carmakers wanting to establish themselves in the world's biggest market.

When Volkswagen announced its long-term strategy to overtake Toyota as the world's largest producer of cars, the German company decided that a plant located in Chattanooga, Tennessee, was going to be a part of that process.

Chattanooga Times Free Press special edition, from July 15, 2008
Volkswagen's decision was welcomed by the local press

Along with 2,000 new jobs at the plant, Volkswagen's arrival will create 11,000 additional jobs in the area through supplier companies.

"We just hired our plant manager this week," says James Wingard, who moved his tyre assembly company from the west coast to supply Volkswagen.

Mr Wingard's plant used to supply Toyota in Fremont, but when the Japanese carmaker decided to close its operations in California, he followed suit.

Toyota is currently hiring for its new plant in Mississippi, underlining a decade-long trend of foreign carmakers moving into the south.

Non-union workforce

"The primary reason - and everyone is more open about this now - they want to be in a non-union environment," says Michael Randle, who publishes Southern Business and Development Magazine.

A German family talk about the experience of setting up home in Chattanooga

This non-union workforce and the crisis in Detroit in the past two years have helped Japanese, Korean and German carmakers to strengthen their market share in the US.

"Foreign automakers have used this time to tool up here in the south," says Mr Randle. "They expanded their plants or retooled them and created a more sufficient supplier base."

With Detroit's Big Three - General Motors, Ford and Chrysler - trying to get smaller and more profitable, half the car market in the US is now up for grabs, says Jay Baron, president of the Center for Automotive Research (CAR).

"I don't think Toyota wants to go head-to-head with VW in Germany, and the Japanese market is protected, so it's not surprising to see this market share battle in the US," Mr Baron added.

Cars in Emden, Germany
Germany exported 257,000 cars to the US in the first half of 2010

By 2011, foreign car companies will have an estimated 60% of the market in the US, compared with 54% in 2008, and just 26% in 1993, according to CAR.

With car exports from Europe skyrocketing in recent years, industry experts agree that exchange rates might be the biggest reason for companies like Volkswagen seeking to operate inside the US.

"If the euro strengthens relative to the dollar for the next several years, which is entirely possible, [Volkswagen] could find it very difficult to make a profit on US sales without extensive hedging," says Joe Foudy, economics professor at New York University.

Local impact

The beneficiaries are towns like Chattanooga, which has seen interest from other companies rise since the Volkswagen announcement, says Tom Edd Wilson, who heads the local chamber of commerce.

"You've got companies out there saying, 'You know we've got to look at Chattanooga, Tennessee, because if Volkswagen chose them, there's got to be something there.' That's the gift that keeps on giving," says Mr Wilson, who now markets the city worldwide.

Car factories
Foreign-owned car factories in south-eastern US

The new plant has helped attract more than $600m (£375m) in construction and supplier contracts to the local and state economy, Mr Wilson says.

The city has built a new exit on Interstate-75 and is in the process of building a rail link to the plant.

The ripple effects have even reached the local grocery store, where bread shipped from Germany has been added to the shelves.

"We have more German people come through the doors of this store than ever imaginable," says Tammy Grafe, the team leader at Greenlife Grocery in Chattanooga.

"Volkswagen coming to town has really helped Chattanooga. It has helped us grow and it's helping the economy."

For the German carmaker, this town is a crucial step in their strategy to sell one million cars in the US. And it believes south-eastern Tennessee offers just the right blend of economic incentives and southern charm.

"We lost our heart here in Chattanooga," says Hans-Werner Jagla, vice-president of HR at the new Volkswagen plant. "But behind this decision is a lot of rationale."



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