Volkswagen to build new SUV in Tennessee to catch up with Toyota

Volkswagen, seeking to revive flagging U.S. sales, will add a mid-sized sport-utility vehicle in 2016 to shore up its lineup in the growing segment.

The seven-seat model will be built at VW’s factory in Chattanooga, Tennessee, the company said in a statement distributed at a press briefing today near Volkswagen headquarters in Wolfsburg, Germany. Spending on the vehicle will total US$900-million, including US$600-million in Tennessee.

VW, which ranks second to Toyota in global auto sales, plans to invest $7 billion in North America by 2018 to almost double the namesake brand’s annual U.S. sales to 800,000 vehicles and become more than a niche producer. A previous effort to broaden its appeal to U.S. drivers with a bigger, cheaper version of the Passat sedan has stalled.

“The Volkswagen brand is going on the attack again in America,” chief executive Martin Winterkorn said in the statement.

U.S. June sales by the Volkswagen brand plunged 22 per cent, accelerating the unit’s six-month delivery decline there to 13 percent. That ran counter to a 4.2 per cent first-half increase in the U.S. automotive market.

The new SUV will be based on a prototype, dubbed the CrossBlue, that was displayed at the Detroit auto show in early 2013. The vehicle is positioned between VW’s existing models in the segment, the $23,305 compact Tiguan and $44,570 mid-sized Touareg. The vehicles compete with Dearborn, Michigan-based Ford’s Explorer and the Highlander from Toyota.

Industrywide demand for SUVs is rising, with the models likely to account for 20.1 percent of auto production worldwide by 2018 compared with 17.6 percent in 2012, according to consulting company PwC. In the U.S., SUVs and crossover vehicles widened their share of the auto market to 30.9 percent in 2013 from 29.7 percent a year earlier, research company Autodata Corp. estimates.

VW chose the $1 billion Tennessee factory, its only U.S. production site, for the new SUV over its plant in Puebla, Mexico, after weighing local incentives. The Chattanooga plant can produce about 150,000 vehicles a year, and capacity can be expanded.

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