With the American economy and auto industry in a constant downward slide we wanted to know how difficult it’s been for Volkswagen to work out deals with auto parts suppliers who are trying to stay in business.
Volkswagen needs a steady and reliable source of parts when it starts building cars in two years. So it’s going to be challenging for them to find suppliers who can weather the current economic crisis and commit to providing those parts on VW’s schedule.
‘The message is clear, nobody is happy when the market is dropping,’ according to CEO of Volkswagen Chattanooga Operations Frank Fischer.
Fischer doesn’t mince words as he acknowledges the difficult times the American automobile industry is facing. He gave an update on plant construction and answered questions before a gathering of government, business and media representatives Tuesday.
As construction on their $1-billion plant moves along negotiations are underway with companies who can supply and deliver parts to make VW cars located within 90 minutes of the plant. Easier said than done, considering how many companies are teetering on the brink of bankruptcy or closure.
‘We are looking into the financial data and are trying to make a proper selection because the worse thing that can happen is to decide now on a supplier and in two years when you want to build a car the supplier is not there,’ Fischer explained.
Fischer said some of the suppliers include people who make things like wheel assemblies, exhaust systems, seats and interior parts.
Construction of the plant’s $30-million paint shop is moving along as scheduled according to Fischer. He said it will feature 400,000 square feet of interior space, rise to 100 feet tall at it’s highest point and will require 4,000 tons of structural steel.
Last month we reported some regional contractors expressing their concerns that they were not getting some of the major work on the paint shop, which Michigan-based Walbridge is managing. Fischer said it’s part of a competitive bidding process that can lead to some disappointment, by using the current paint shop project as an example.
‘There are seven bidders and just one will get the order so there are six companies, or bidders, who are in a very unsatisfying situation and so that is the nature of the business and somehow we have to live with it,’ Fischer said.
Volkswagen has established a set of guidleines as it selects contractors and sub-contractors. The general contractor chosen to perform the remaining major construction projects must use at least 30% local companies. The general contractors must also hold ‘outreach meetings’ in the community to find local talent. The process must also involved the Chamber of Commerce.
Fischer said so far about half of all work is going to local companies and that more than 10% of them are minority or women owned.
A big milestone was reached Tuesday as VW and local officials signed a memorandum with EPB. Volkswagen will buy about $230,000,000 worth of electricity over 20 years through an $11-million substation.
The German automaker is also taking bids to build the body and assembly shop buildings of the plant and plans to award contracts later in the spring.
‘The progress is being made step-by-step, section-by-section,’ Fisher added.
In other developments the Volkswagen, AG Board of Supervisors in Germany approved the lay out and plans for the plant’s body shop and offices at the site. Fischer said the construction of the offices will be unique and feature designs that will be announced in the coming weeks.
There will be a delegation of business and political leaders from the German Federal State of Lower Saxony, home of Volkswagen, in Chattanooga Thursday and Friday this week. Fischer said this is an effort to get more German businesses interested in investing in projects around the Chattanooga region.
An official groundbreaking ceremony is planned for May 14 and will include top management officials from Volkswagen’s German headquarters.
Fischer noted Volkswagen has performed much better than other automakers in light of the worldwide economic downturn. He said VW ended 2008 with an overall worldwide increase of vehicle sales of 6.23 million units which is up .6% over 2007. Fischer said the first three quarters were positive for VW with the fourth quarter of 2008 trending down.
In January 2009 Volkswagen sales dipped 3.2% compared with Janaury 2008, while sales industry-wide dropped 11.6% according to Fischer.
Plans are to begin production of a still un-named four-door sedan in Chattanooga during the first half of 2011.
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