Next on VW's U.S. to-do list : Powertrains

Volkswagen TSI engine

Volkswagen AG is proceeding nicely on its to-do list for a new factory here, but one crucial item remains: powertrains.

VW has not decided where it will produce transmissions for the 150,000 vehicles it plans to build annually in Chattanooga by early 2011, says spokesman Jill Bratina.



The engine situation is clearer, but questions remain. Engines for the Passat-like sedan will come from VW's factory in Puebla, Mexico, Stefan Jacoby, CEO of Volkswagen of America

Needed: diesels and hybrids

Last year, the Puebla factory turned out 340,000 engines, well below its annual capacity of 500,000.

But those were all gasoline engines: 2.0-liter four-cylinders and 2.5-liter five-cylinders. Jacoby said the vehicles produced in Chattanooga will be offered in gasoline, hybrid and diesel versions.

"We are one of the technology leaders worldwide with diesel technology, and we are very convinced that diesel will have a future here in the United States," Jacoby said.

So where will VW get the additional engines, not to mention transmissions? Importing from Europe is one option, but that would erode the currency advantage that VW hopes to gain by building a U.S. factory.

The euro has been gaining steadily on the U.S. dollar in the past couple of years, making goods produced in Europe more expensive in the United States. A year ago, $1 was worth 0.79 euros. Late last week, $1 was worth 0.63 euros.

As it stands now, VW doesn't produce any transmissions in North America, said Thomas Karig, vice president of corporate relations and strategy for Volkswagen de Mexico.

New transmission plant?

Karig said most transmissions used in VW's Mexico operations come from Germany. That's especially true of the automatic gearboxes used mainly in vehicles bound for the United States, he said.

"Actually, we are looking into the alternatives available to source engines and transmissions for both North American plants, which include the possibility of a new location somewhere, sometime in Mexico," Karig said. He noted that no decision has been made.

In February, VW group CEO Martin Winterkorn confirmed that Volkswagen would spend about $1 billion in its Mexican operations over the next three years for Jetta production and "capacity optimization" at the Puebla factory.

VW could be waiting on Audi to decide whether it will build vehicles in North America before deciding on powertrains. Audi has said it will decide by next spring, with joint production at the Chattanooga plant as an option.

[Source : Automotive News .. Sub req.]