VW: Flop in New Stanton, boom in Tennessee
By Richard Gazarik
Published: Tuesday, July 16, 2013, 12:01 a.m.
In Chattanooga, Tenn., 585 miles from New Stanton, Volkswagen's new auto assembly plant is building its popular Passat, ranked the 22nd best-selling car in the country, for the American market.
It was 25 years ago this month that VW closed its New Stanton assembly plant amid plummeting sales of the Rabbit, leaving 2,500 workers jobless and Westmoreland County scrambling to find another tenant for the sprawling plant.
Experts blame VW officials' failure to gain traction in the market at its New Stanton plant on building cars not popular with Americans, failing to keep pace with swift market changes and struggling with chronic labor issues.
“They could have done it there (New Stanton), but they didn't,” said Gerald Myers, professor of management at the University of Michigan who was CEO of American Motors and an executive at Ford and Chrysler. “They had the resources. They had the funds. They had the talent to do it, but they didn't do it because of a lack of dedication to the market.
“The United States was the only market failure for VW. In Brazil, they own the place, but they had a blind spot in America,” he said. “Now they see opportunity again. (Volkswagen) wants to get into this market like it never has before.”
VW sees that chance in Tennessee, Myers said.
Myers said VW produced the wrong car for the American market — the boxy, fuel-efficient Rabbit — at the New Stanton plant.
“The Rabbit was a vehicle designed in Europe for Europeans,” he said. “The Rabbit was a failure here. It was just another plain Jane econobox.”
Bruce Belzowski of the Automotive Analysis Division at the University of Michigan's Transportation Research Institute said the Rabbit, the only model to come off the assembly line in New Stanton, wasn't enough.
“It was not much of a product line if you're just producing one car,” he said.
As the 1970s fuel crisis eased, the humble Rabbit lost much of its appeal to car buyers.
John Skiavo, now-retired director of the Economic Growth Connection of Westmoreland County, said VW didn't adjust to American car-buyers' changing tastes.
“They open a plant to manufacture Rabbits that sold more in Europe,” Skiavo said. “They made the Jetta in Europe, which sold more here.
“Manufacturing has to be flexible in order to survive,” he said.
Belzowski said dramatic changes in manufacturing technology and a global marketplace made it easy for VW to return to U.S. manufacturing.
“I don't even know how to characterize the magnitude of improvements now from then,” he said. “It's hard to compare manufacturing at the time compared to what is going on now.”
Since 1968, Pennsylvania provided $168 million in incentives and tax breaks — $100 million for Volkswagen alone — to develop the Westmoreland site for Chrysler, VW and Sony.
VW opened its assembly plant 12 miles outside Chattanooga two years ago after receiving $577 million in incentives from the state, outbidding Alabama and Michigan. Nissan opened an auto assembly plant in Smyrna, near Nashville, after receiving $197 million in state incentives.
Incentives are important, said William Fox, economics professor at the University of Tennessee in Knoxville. Concessions granted by Tennessee are outweighed by the financial gains VW and Nissan bring to the local and state economies, he said.
“There is a huge amount of spending in the region and in the state,” Fox said. “The spending in Tennessee for things other than labor far exceeds their labor bill. When we were talking to the company's location people, we talked about 2,000 employees at the facility, but VW exceeded that job prediction with 2,415.”
Robert Strauss, who teaches economics and public policy at Carnegie Mellon University, said companies are attracted to right-to-work states such as Tennessee where employees can decide for themselves whether to join or financially support a union.
“Companies want to be in states that are hospitable and not subject to union rules,” he said. “We still have an image problem with our labor relations.”
Unionized Michigan auto workers earn an average of $52 an hour including wages and benefits, nearly double the $27 an hour for the nonunion workers at VW and Nissan plants, according to the Bureau of Labor Statistics.
The UAW is trying to organize the Tennessee plant's 3,350 employees with the support of I.G. Mettal, the union that represents VW workers in Germany.
Billboards that popped up on highways around the Tennessee plant last month urge workers to reject the UAW.
“Auto unions ate Detroit. Next Meal? Chattanooga,” the signs read.
At the New Stanton plant, the UAW and VW got off to a rocky start when the union organized workers.
In 1978, the workers called a wildcat strike after the UAW International promised them wage parity with Detroit auto workers but couldn't deliver. A series of wildcat strikes in 1979 involved working conditions. A later strike by Teamsters caused a parts shortage, forcing VW to briefly close the plant and furlough workers.
Fox said VW is a stronger, more adaptable company than in the years it operated in New Stanton.
“Could they close if the market changed dramatically? Sure, they could. Look at the number of firms that closed in Pittsburgh over the years,” Fox said. “Can VW transition with the economy of the future? I think they'll do pretty well.”
VW has an annual $643 million payroll and is credited with generating 12,400 jobs in the Chattanooga region, according to a University of Tennessee study. The state is now lobbying VW to add production of a sport utility vehicle at the plant.
“Southern states can be quite aggressive with incentive packages,” said Jason Rigone, economic development director for Westmoreland County. “When a state offers $500 million for a $1 billion project, that's hard to compete with.”
Belzowski said studies show that incentives cost states money in the long run but are “instant hits” with politicians, who can point to the number of jobs that will be created and the increase in payroll and tax revenue. It's politicians who hold the purse strings and approve the incentive packages, he said.
“You can say right off the bat what it will cost each person in the state of Tennessee to have VW come here,” he said. “From a political perspective, it's a big deal. Politicians want to make things happen right away.”
Today, the Regional Industrial Development Corp. and Westmoreland County economic development officials are trying to fill the void in the 2.8 million-square-foot facility. This time around, they're trying to attract smaller manufacturing firms.
“There's always an opportunity to have large companies, like VW and Sony, come in,” Rigone said. “We're not going to focus on large manufacturers as an economic driver in the area.”
Aquion Energy this year plans to open its first mass manufacturing plant to produce its batteries, which use saltwater instead of lithium to conduct electricity. The company expects to hire 400 workers by the end of 2015.
Westmoreland County Community College broke ground Friday for its Advanced Technology Center, a 73,500-square-foot facility that will house several high-demand programs including welding, electronics and robotics and engineering technology, as well as new programs in mechatronics, energy and advanced manufacturing.
Richard Gazarik is a staff writer for Trib Total Media. He can be reached at 724-830-6292 or at email@example.com.
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