Why VW Is Expanding Engineering in Chattanooga

Yes, they’ve been building Passats in Tennessee since 2011. Yes, they’re expanding to accommodate an SUV for launch in 2016. But notably, VW is putting a significant engineering team 4,500 miles west of Wolfsburg.

Before Matthias Erb became, Executive Vice President, Engineering & Planning, Volkswagen Group of America, he was in charge of the office chairman of the Supervisory Board of Volkswagen AG in Salzburg, Austria. (He joined VW in 2003; he took the position in Austria in 2008; he was given the responsibility for setting up Volkswagen’s North American Engineering & Planning Center in Chattanooga, Tennessee, in 2014.)

He spent some time living in Michigan, three years, as among the management positions was a stint with Audi of America in Auburn Hills.

One of the things that Erb says he is conscious of when it comes to driving behaviors in the U.S. compared with Europe is a matter of size.

Right now, design and engineering—product and process engineering—are underway for the development of a seven-passenger, midsize SUV. When the vehicle was announced in July, 2014, Prof. Dr. Martin Winterkorn, Chairman of the Board of Management of Volkswagen Aktiengesellschaft, said, “The United States of America is and will remain one of the most important markets for Volkswagen. Over the past few years, we have achieved a lot there. We are now launching the second phase of the Volkswagen campaign in the U.S. With the midsize SUV, the expansion of the Chattanooga plant and the new development center, the focus is on the wishes of the U.S. customer. This is also a strong signal for the U.S. as an industrial and automobile production location. The Volkswagen brand is going on the attack again in America.” 

Volkswagen has had its Touareg SUV on offer in the U.S. for over a decade. While it is a midsize, it seats five, not seven.

Erb points out, “In Europe, a Touareg is a big car. People don’t buy this because it is too big. If you park here in a mall in Tennessee, you can’t find your car. The roofline is lower than that of an F-150.”

So while the Touareg may be big, it is not big enough, at least for the U.S. market.

He says that back in Salzburg he would have an exceedingly difficult time finding a place to park the Touareg. Presumably, it would be even tougher for the new vehicle coming in 2016.

But in the U.S., this is not necessarily the case. After all, there are all of those mall parking lots.

“We have to talk to our board and make sure they are aware that this is a midsize SUV.”

The perspective in Wolfsburg can be a whole lot different.

And it is perspective that’s important to VW’s efforts in the U.S. market. As is place.

“You have to be where the competencies are,” Erb says. “You have to go to Silicon Valley if you want to do electronics.” So VW established its Electronics Research Laboratory in Belmont, California.

And it has a design center in Santa Monica.

So why put the North American Engineering & Planning Center in Tennessee rather than Michigan? After all, south-eastern Michigan has the lion’s share of domestic automotive engineering talent in the country, based on the history of GM, Ford and Chrysler, to say nothing of the multitudinous suppliers that have served them for the better part of a century. And while Toyota is in the process of moving many of its people to Texas, it is expanding its engineering base in Michigan. And there are also Nissan and Hyundai/Kia with engineering centers in Michigan, as well.

Erb is no stranger to the Great Lakes State. And Volkswagen Group still has presence and people in Auburn Hills.

“I am aware of the competencies in Michigan,” Erb says. But then goes on to say of the Chattanooga positioning: “We have the plant there”—and know that the plant is undergoing a 512,866-ft2 expansion to accommodate the new SUV—“and we have purchasing there.

“At Volkswagen we have a tradition of putting functions together. So if you want to develop a new vehicle, it is good to have production close. And purchasing.”

The U.S. market provides a particular challenge for Volkswagen Group, which had just 3.3% of the U.S. market in 2014, according to Autodata (motorintelligence.com).

Meanwhile, everywhere else in the world it is a major factor.

Volkswagen has deployed a platform strategy to make its vehicle development and production more efficient. It is the MQB platform, for traverse-mounted powertrains. It underpins a variety of vehicles, including the Golf and the European Passat.

“European Passat?”

Yes, the vehicle that is produced in Chattanooga was specifically developed for the U.S. market and doesn’t yet ride on the platform. (The Audi A3 does, however. And there is also the MLB platform, for vehicles with a longitudinally oriented powertrain; it ranges from the Audi A4 to A8.)

Erb believes that the platform approach is sensible because chances are a customer isn’t going to know “what kind of axle he has.”

However, “Above or beyond the platform—that’s where we have to work on things, like exterior design. We have to change the interior design, as well.”

It is what the customer interfaces with—sees and feels—that Erb thinks needs to be addressed, which local knowledge will contribute greatly to.

But isn’t one of Volkswagen’s strengths in the U.S. market “German engineering”? Isn’t that something that could be lost because of the North American Engineering & Planning Center? Erb doesn’t think so. 

“The platform—the chassis, the drive-train—defines how the car behaves on the street. It is still there.” That is what’s being engineered in Germany.

Erb says, “I think we can do a lot of things in Chattanooga while keeping German engineering,” then adds, “We would like a little American spirit, too.”