As significant as 2,000 new Volkswagen jobs will be to the economy of Chattanooga, the German automaker's new U.S. assembly plant will spread benefits far beyond the plant's borders, bringing more jobs — and attention — to Tennessee as it moves toward playing a bigger role in the U.S. auto industry.

 

The state has progressed from zero auto jobs 30 years ago to become one of the leading auto-industry hubs, a position strengthened recently not only by Volkswagen's mid-July announcement that it would build in Chattanooga, but also by Nissan's move of its North American headquarters to the Nashville area two years ago, and General Motors Corp.'s decision this year to reopen the former Saturn plant in Spring Hill to build a new Chevrolet crossover utility vehicle.

 

While there is some concern that the state could be investing too heavily in a single industry — incentives for the VW plant alone are approaching $300 million by conservative estimates — state officials and economists insist that there is room for more auto expansion in Tennessee and that the jobs will be good ones.

 

"Certainly we want a balanced economy, but no one is going to turn down more automotive if it happens," said Bill Fox, director of the Center for Business and Economic Research at the University of Tennessee. "It's not really unbalanced now, as we have more than 60,000 jobs statewide in the transportation-equipment industry, and not all of that is automobiles.

 

"Even as important as it is, it's still a small portion of Tennessee's economy, and we can expand it without being unduly weighted in a particular industry."

 

Some estimates are that state and local incentives to attract Volkswagen will reach
$300 million or more, the bulk of which would come from abatements of taxes over many years. That compares with $197 million pledged to Nissan for its headquarters relocation from California.

 

"The incentives look pretty big, but they're calculated over 30 years, so it's a long timeline," said Sujit Canagaretna, senior fiscal analyst for the Council of State Governments in Atlanta and an expert on the growth of the auto industry in the South.

 

"Looking at the example of Mercedes-Benz locating in Alabama in 1993, a relatively small investment resulted in tens of billions of dollars in payback," he said. "As for Volks wagen in Tennessee, what the state will gain shows this is a very positive thing. Tax abatements are a big part of it, and that money wouldn't have come anyway if the company hadn't located in the area.

 

"When it's vacant land, it's not generating any revenue," Canagaretna said.

 

The incentives are tied to job creation and capital investment, said Matt Kisber, state commissioner of economic and community development. One of the key elements in the Volkswagen deal, for instance, is a training allowance of $12,000 per worker, which would total $24 million for 2,000 employees. Additionally, the state would spend $6 million to build a training center near the plant, officials said.

 

The state has spent $1.25 million for grading at the plant site, and will pay for more site-preparation work and development of infrastructure to support the facility, although an exact dollar figure won't be available until Volkswagen finalizes the site plan, Kisber said.

 

"But there will be a limit," he said. "We have not given them a blank check."

 

At the local level, Chattanooga and Hamilton County will give Volkswagen the 1,350-acre plant site in the Enterprise South Industrial Park, valued at $60,000 an acre for a total of $81 million, said Tom Edd Wilson, president and chief executive of the Chattanooga Area Chamber of Commerce.

 

There will be provisions written into the deal that would protect the city and county if Volks wagen were to close the plant prematurely. The land would revert back to the city and county, which co-developed it on the site of the former Volunteer Army Ammunition Plant.

 

Gov. Phil Bredesen, a key player in attracting Nissan's new headquarters to Nashville and bringing Volkswagen to Chattanooga, said the state is ready to attract more auto investment, but also will continue to seek other industries.

 

The auto industry is king in Tennessee now, though, as far as manufacturing jobs go, said U.S. Sen. Lamar Alexander, who as governor in the 1980s was instrumental in persuading Nissan and General Motors to build assembly plants here.

 

Nissan was first, with a compact-pickup plant in Smyrna in 1983, followed by GM's Saturn subsidiary in Spring Hill in 1989. Nissan since has built an engine plant in Decherd, off Interstate 24 about an hour east of the Smyrna plant.

 

"Thirty years ago, we were one of the three poorest states in the nation," Alexander said. "Fast forward 30 years, and family incomes have increased substantially because of the auto jobs we have attracted."

 

The auto jobs explosion created by the assembly plants has spread throughout the state, Alexander said, because the suppliers don't necessarily have to be close to the main plant, and many have chosen smaller communities where there is little or no competition for the available manufacturing work force. "You can go to almost any county in Tennessee and find auto jobs," Alexander said.

 

"With auto, it's a big deal when you get an assembly plant because you get not only production jobs, but supplier jobs spread out over a broader region," UT's Fox said. "A number of other communities benefit. That's why an auto-assembly operation is one of the bigger hits you can get."

 

The supplier network is less stable than the assembly plants themselves, primarily because the suppliers are dependent on generally short-term contracts from the automakers. They rise or fall on the sales success of a particular vehicle for which the parts are made.

 

"The trick will be to attract suppliers for the auto companies that are diversified enough to make products for other industries as well," said economist David Penn of Middle Tennessee State University.

 

As one supplier closes, another seems to take its place, so even with the churn, the supplier business continues to provide jobs.

 

One big plus in Tennessee's recruiting efforts among auto makers and suppliers is that it is a right-to-work state, Alexander said. That means workers do not have to be union members to hold a particular job, as is the case in Michigan, where the United Auto Workers union historically held sway over the auto industry.

 

Tennessee isn't immune to auto labor problems, though. While the Nissan assembly plant in Smyrna and engine plant in Decherd are nonunion, the GM plant in Spring Hill works under a UAW contract.

 

UAW efforts to unionize one of the suppliers for the new Chevrolet Traverse, Johnson Controls Inc. in Columbia, has resulted in a strike against that company that threatens to delay startup of Traverse production this fall.

 

The Johnson Controls plant has a contract with GM to make seats and interior consoles for the Traverse. But most of the company's 170 workers, who were still in training, walked out July 16 over Johnson Controls' refusal to recognize their decision to join the UAW, the union said.

 

The fact that it probably won't have to deal with unions in Chattanooga probably was a key factor in Volkswagen's decision to choose Tennessee over a site it was considering in Michigan, analysts have said. Alabama also was in the running for the VW facility.

 

Whether or not the Volks wagen plant attracts more auto-industry expansion to Tennessee, the move should help the state recruit other industries, MTSU's Penn said.

 

"It is important to diversify," he said. "And when you look at the Nashville area, we do have a diversified employment base. Higher education and health care, transportation, wholesaling, entertainment and warehousing also are big parts of our economy.

 

"But success breeds success, so when a company like Volks wagen decides that Tennessee is a good place to do business, that is recognized by other companies around the world. There are 49 other states that would love to have the success this state has had in the past 25 years."