Despite the industry’s travails, the German automaker expects to boost U.S. sales through its $1 billion investment in a Chattanooga factory set to make midsize cars

By Jack Ewing

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An aerial range of Volkswagen’s Chattanooga, Tenn. manufacturing site. Volkswagen

Detroit carmakers may be fighting for survival, but further southward in Chattanooga, the auto industry is still form at least couple guys happy. They would be Ron Littlefield, mayor of the Tennessee city, and Claude Ramsey, mayor of the surrounding county. In July, they learned that German carmaker Volkswagen (VOWG.DE) had chosen Chattanooga as the site for a new U.S. factory that will produce a renovated midsize VW by 2011. As Littlefield said during a recent stopover in Frankfurt, "An auto plant is the holy grail of economic development."

Certainly that has been authentic in the above. Auto plants are prized not only for the jobs they create instantly, but also because they attract suppliers who create other jobs and generate sales for restaurants, builders, and other local businesses. Volkswagen has vowed to hire 2,000 rabble in Chattanooga and array $1 billion. All told the VW plant will create 11,500 jobs, including the VW employees, and boost individual income in the region by more than $500 million a year, according to one August study through means of the Center for Business Research at the University of Tennessee.

But is a VW plant still so enviable when the global auto busy vigor is going through one of its worst downturns ever? Quite possibly, yes. Although Ford (F), General Motors (GM), and Chrysler are in such dire shape that they had to petition with respect to Congress for a bailout, Volkswagen remains relatively healthy thanks to its impregnable presence in developing markets such as China, Russia, and Latin America. To be sure, VW also is feeling pain these days—sales worldwide fell 5.1% in October vs. a year earlier, to just immersing 500,000 vehicles. But that compares through a 16% plunge for the industry as a total. VW’session premium Audi unit on the same level reported a slight uptick in sales in November. (VW hasn’t yet reported November sales for the whole group.)

Despite the global downturn, VW’s reasons for building a U.S. body of factors may be more compelling than ever. While U.S. automakers must retool massively away from gas guzzlers, Volkswagen already has generations of actual presentation building midpriced, fuel-efficient cars for the European market, where gasoline is at least two times considered in the state of expensive as in the U.S. If Volkswagen can expand that compact-car expertise in America, it could be in a position to profit then the economy recovers. "For them this plight holds a distribute of opportunity," says Christoph Stürmer, analyst at market watcher Global Insight (IHS) in Frankfurt.

Chattanooga’session civic boosters certainly wouldn’confidentially be unsuited. They began competing for the VW found late in 2007, shortly after losing a bid to attract a new Toyota ™ plant which the Japanese carmaker instead decided to construct in Blue Springs, Miss. The city’s first personal contact through Volkswagen came in January 2008, when Trevor Hamilton, vice-president of economic development for the Chattanooga Area Chamber of Commerce met with Stefan Jacoby, president of Volkswagen Group of America, at the North American International Auto Show in Detroit. The brief meeting gave Hamilton a chance to emphasize Chattanooga’s virtues, such as good highway connections and 1,350 acres of vacant land located just 12 miles from downtown.