Volkswagen Considers Building U.S. Audi Factory

Volkswagen AG will decide in the next 12 months whether it will build Audi luxury cars in the U.S. in addition to VWs it is churning out at a new factory here, the company's chief executive said on Tuesday.

The German auto maker hopes to dramatically increase U.S. sales of VWs and Audi luxury cars over the next five years. It is counting on its new Chattanooga plant to lower production costs of a key VW sedan so it can better compete in the U.S. against rivals including General Motors Co., Ford Motor Co. and Toyota Motor Corp.

U.S. production could help Audi sales, but the decision depends on whether the volume is enough to justify having its own factory in the U.S., CEO Martin Winterkorn said.

BMW AG and Daimler AG's Mercedes-Benz division have U.S. plants but each now sells more than twice as many cars here annually as Audi.

Volkswagen aims to nearly triple its U.S. sales to one million vehicles a year by 2018. The VW brand would account for sales of about 800,000 vehicles, and Audi for about 200,000. Last year VW sold 256,830 cars and light trucks in the U.S., and Audi 101,629.

The $1 billion Chattanooga plant is "a key driver of our long-term success in the U.S.," said Michael Macht, VW's top manufacturing officer, at an event to celebrate the factory's opening.

Built at a former military facility on the edge of Chattanooga, the complex is designed to build 150,000 Passat sedans each year and can be expanded to as many as 300,000 units, he said.

Mr. Macht said the company doesn't now intended to export any vehicles from the plant. VW has lost money for a decade in the U.S. because of unfavorable exchange rates between Europe and the U.S., and uneven sales results.

When VW's intention to build the plant was first announced, it laid out plans to export some of the vehicle made here, with a significant number going to Europe. Exporting cars from the U.S. to Europe would turn a weaker dollar into an advantage for VW.

The new plant makes it possible for VW to lower the price of mid-sized Passat by about $8,000 to roughly $20,000, in line with competitive vehicles including the Honda Accord and Hyundai Sonata. VW is counting on the lower price to increase sales.

Mr. Winterkorn said VW now produces parts that account for 85% of the cost of the vehicle in North America, lowering the impact of the currency translation.

The VW plant also is paying its workers $14.50 an hour to start, roughly half of what workers make at older Toyota plants half of what veteran workers make in unionized GM, Ford and Chrysler Group LLC plants.

The perceived reliability of VW models could pose a challenge for VW, however. Volkswagen ranked 30th out of 35 brands for dependability in the 2011 J.D. Power and Associates survey of customers reporting problems over a three year period. In a study of problems in the first few months of ownership, it was only above Mitsubishi Corp. and Land Rover in the 2010 initial quality survey.

Christian Klingler, VW's global chief of sales and marketing, said the company is intent on improving. "It might take some time, but we can get to the level of the Japanese in the next couple of years," he said.

Mr. Winterkorn said the company is on track to achieve its highest global sales ever in 2011 and the company hasn't wavered from his goal of being the top auto maker in the world in sales by 2018.

When asked whether Porsche SE might build any vehicles in the U.S., Mr. Winterkorn said no. Porsche is controlled by Volkswagen.