VW's 'SUV offensive' means more work for Tennessee plant

Volkswagen released this image of a concept version of a new 5-passenger SUV based on its 7-passenger Atlas SUV. The vehicle will debut at the New York auto show in late March 2018. A production version will be manufactured at VW’s Chattanooga, Tenn. plant.

(Photo: Volkswagen)

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Volkswagen Group said Monday that it would add a third vehicle to its Chattanooga, Tenn., plant — a new sport-utility model that the company said it will reveal at the New York Auto Show next week.

The new SUV will be a five-passenger version of the larger seven-passenger Atlas SUV, which arrived in 2017 and has been an early hit.

VW said it would reveal the model’s name in New York. It was also not clear when the vehicle would arrive in dealerships.

The plans come amid debate over U.S.-foreign trade relationships as President Trump threatens tariffs on imported European vehicles and continues NAFTA negotiations.

VW spokeswoman Jeannine Ginivan said in an email that the move “is not a reaction to the proposed tariffs.”

VW’s plans to locate another model at the Chattanooga plant, its only U.S. factory, have been in the works for several years, said Kristin Dziczek, director of the industry, labor and economics at the Center for Automotive Research.

The Chattanooga plant, which will continue to make the Passat sedan and the Atlas, has excess production capacity, Dziczek said.

“They needed to fill out that plant for business economic reasons, not for trade reasons,” she said.

It also makes sense to build vehicles in the markets where they are sold to minimize shipping costs and avoid exposure to currency fluctuation, she said.

The new model marks the continuation of VW’s so-called “SUV offensive” as the company aims to diversify its lineup after overcommitting to passenger cars.

It’s not uncommon for automakers to make slightly smaller versions of existing SUVs in hopes of capitalizing on Americans’ thirst for larger vehicles. Nissan, for example, recently started selling the Rogue Sport, a smaller and peppier version of its popular and larger Rogue crossover.

VW said it would spend $340 million to ready the Chattanooga plant for production of the new model after already investing $900 million on Atlas production.

“The Atlas has built strong momentum for Volkswagen in the SUV segment, and we are excited to grow our SUV portfolio with this new, Chattanooga-assembled five-passenger SUV,” Volkswagen U.S. CEO Hinrich Woebcken said in a statement. “We are not only committed to this market, we are committed to our U.S. manufacturing home in Chattanooga.”

The move comes after VW global brand CEO Herbert Diess recently told reporters, according to The Wall Street Journal, that it’s a “legitimate discussion” to consider why Europe has a 10% import tax on passenger cars while the U.S. is allowed to only impose a 2.5% tariff on cars from Europe.