The construction for Volkswagen’s (VW) $900 million Chattanooga plant expansion is about to break ground. According to the Chattanooga Times Free Press, VW is expected to award the first of a number of large contracts in the next few weeks. Gray Construction (Lexington, KY) is believed to be the front runner whose contract (if accepted) will handle $33.6 million of work to enlarge the factory’s body shop, technical center and assembly finish area. The city and Hamilton County are splitting the proposed contract’s cost as part of the incentive package awarded VW to build a new sport utility vehicle (SUV) in Tennessee.

Based on VW’s analysis, the mid-sized SUV market in the United States has grown to more than 1.4 million vehicles from about 750,000 in 2009. Fox Business reported that unit production of the VW SUV would be in the six-figure range. The SUV will be sold in North America and other markets, and built on the same vehicle chassis as the Passat sedan. At its 2011 peak, the Chattanooga plant built 130,000 Passats. The company said its goal is to deliver 800,000 vehicles (including the SUV) in the United States by 2018.

Approximately $600 million is expected to be spent in Tennessee on the expansion, and state and local governments agreed to pump more than $230 million in tax dollars into the project to ensure VW expanded in Chattanooga rather than its other major North American plant in Puebla, Mexico, where labor costs are much lower. SUV assembly is slated to start in 2016, and VW plans to hire another 2,000 workers to join the 2,400 currently at the plant producing the Passat sedan.

Chattanooga Mayor, Andy Berke, provided further explanation of the funding for the plant expansion. Combined with other property tax breaks, road projects, TVA incentives and other potential tax credits, VW could qualify for more than $300 million of grants, credits and other government assistance over the next decade.

The latest incentive package is in addition to the original $577 million of incentives offered to VW in 2008 from federal, state and local governments to persuade the German automaker to build in Chattanooga. The VW incentive package is one of the most generous government aid programs ever provided for an automotive plant in the United States. Therefore, expectations are high that this investment pays off for Tennessee and the United States.


Ryan Lahti is the founder and managing principal of OrgLeader, LLC. Stay up to date on Ryan’s STEM-based organization tweets here: @ryanlahti