Analysts: Southern states favorite in bid for VW plant

WASHINGTON - Tennessee and Alabama should be favored over Michigan to land a new Volkswagen assembly plant, analysts said Thursday, based on the auto industry's ongoing migration into the Sun Belt and concerns about labor's heavy influence in Michigan.

Volkswagen confirmed that it was considering the three states for a potential plant, offering a crown jewel of economic development that could help the states expand their auto industry presence.

Lured by incentive packages, an eager work force and a lack of unions, several Southern states have attracted automotive plants during the past two decades.

Three auto companies have already landed in Alabama. Daimler AG builds sport utility vehicles in Vance, Honda Motor Co. produces minivans and SUVs in Lincoln and Hyundai Motor Co. brought its first U.S. assembly plant to Montgomery, where it builds the Sonata passenger car and the Santa Fe SUV.

Tennessee is the home of Nissan Motor Co.'s North American headquarters near Nashville and has plants in Smyrna and Decherd. The state also has a General Motors Corp. assembly plant in Spring Hill.

Erich Merkle, vice president of auto industry forecasting for the consulting firm IRN Inc. in Grand Rapids, Mich., said Alabama is the likely front-runner followed by Tennessee. He said Alabama may have an edge because Mercedes-Benz has had a successful run in the state and "there's a German supply base that's already pretty well-established."

But he noted that Tennessee has come close to bringing an auto plant to a 1,600-acre site in Chattanooga in recent years. The region was a contender for a Toyota Motor Corp. plant that is being built near Tupelo, Miss., and a Kia Motors Corp. plant that went to West Point, Ga.

Michigan, meanwhile, could be undercut by the long-standing dominance of the United Auto Workers in the state. VW executives have been evaluating potential sites at a time when GM has faced a local strike at a plant near Lansing, Mich., and threats of strikes elsewhere.

Industry analysts have speculated that the strike threats are part of a UAW strategy to urge GM to pressure supplier American Axle and Manufacturing Holdings Inc. into ending a long contract dispute.

"That's the big risk of coming to Michigan or anywhere in the north. You've got the UAW which is very strong and a lot of companies have wanted to avoid that," said Aaron Bragman, an automotive analyst with Global Insight Inc.

The UAW's attempts at organizing North American plants run by Toyota, Honda and others have been unsuccessful.

Michigan would have a considerable edge in its availability of skilled workers, thanks to the recent rounds of buyouts from the Detroit Three. And given the state's economic problems, it would be highly motivated to land another assembly plant, said Jeremy Anwyl, chief executive of the Edmunds.com automotive Web site.

Anwyl said the most recent contract negotiations and concessions accepted by the UAW with GM, Ford Motor Co. and Chrysler LLC "probably takes some of the sting out of being a unionized plant - not completely, but it wouldn't be as bad as it would have been, say, five or 10 years ago."

Others noted that Volkswagen recently moved its North American headquarters from metropolitan Detroit to Herndon, Va., outside of Washington, citing the need to be closer to its East Coast customer base. Bringing an assembly plant to Michigan would seem to run counter to their rationale for making the move, they said.

A big question mark surrounds the incentive packages being developed by the states to woo Volkswagen. State economic development officials have declined to detail their efforts for the plant, which would be slated to carry a maximum capacity of 250,000 vehicles a year.

Volkswagen has not yet committed to building a new plant in the U.S., but the move is expected. With the euro currency reaching record highs against the U.S. dollar, goods exported from Germany are more expensive in the United States.

The Wolfsburg, Germany-based company has said it wants to expand in the U.S., where it has a small slice of the market. Volkswagen executives have said they want to triple U.S. sales by 2018 to 1 million.

Currently, Volkswagen's only assembly plant in North America is in Puebla, Mexico, where it builds the Jetta and New Beetle.

"Given Volkswagen's plans for international expansion, a big chunk of that is supposed to come from the United States, and there's no way they can build enough in Puebla or import enough at a profit to do it, so I think a new plant is guaranteed," Bragman said.

Copyright 2008 The Associated Press.