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A worker in Volkwagen's Chattanooga, Tenn. plant (VW).
There is a German wind swirling around, of all places, Chattanooga, Tenn., a town perhaps best known for railroads and, in keeping with that history, the Glenn Miller swing classic, "Chattanooga Choo Choo."

These days, the rise in German beer being offered at local pubs in the southern city is due to the ramp up of Volkswagen's sprawling factory complex that could one day manufacture a half million vehicles a year.

The plant, which has begun making an all-new redesigned VW Passat mid-sized sedan, has brought 11,477 new jobs so far to the region including VW's direct employment and all the businesses feeding the plant, according to the Chattanooga Chamber of Commerce.

While the assembly plant and manufacturing park is a boon to the southern Tennessee economy, it also marks a significant turning point in Volkswagen's history in the U.S.

VW closed its first assembly plant, in Pennsylvania, in the late 1980s when quality problems and high pricing due to currency fluctuations drove down demand for VW vehicles, especially the ones made in the U.S. But VW has roared back from a low-point in the mid 1990s. when it sold so few vehicles it considered leaving the U.S. And the Chattanooga plant is a lynchpin to the company's ambitious goal of selling 800,000 vehicles a year in the U.S. by 2018.

VW Meets Value Pricing

The first of the new Tennessee Volkswagens is the Passat. The mid-sized sedan has been around since the late 1980s, but has never sold well. Each design of the car was too small and too expensive compared with rivals like Toyota Camry, Honda Accord and Ford Fusion. Last year, when VW sold just a little over 11,000 Passats, the sticker price was above $28,000 and could easily nudge over $30,000 without adding too many features. That's about $5,000 more than a comparable Camry or Fusion.

"The old Passat was a terrific car, but it was made for Europe first, and you had to really want a Volkswagen to buy that car because of the pricing," says Frank Fischer, CEO of the VW plant.

The old Passat, along with the current VW Tiguan and Touareg SUVs, was built in Europe with primarily European-sourced parts, making them more expensive in the showroom. When European parts priced in Euros were converted to U.S. dollars, the sticker price went up.

The new Passat has been designed to be built with 85% of its content derived from North American-based suppliers and manufacturing. That insulates VW from the profit-crushing fluctuations between the U.S. dollar and the euro.

The new sedan has a starting price of just under $20,00 to make it price competitive in a category --mid-sized sedans -- that is a battleground of value pricing. The 2011 Camry starts at $20,195. The Honda Accord starts at $21,380 and the Ford Fusion starts at $19,850. The entire price range for the Passat is from $19,995 to $32,950.

The Passat is only the beginning for VW in Chattanooga. Right now, the factory is set up to build about 125,000 vehicles. But the facility has been planned to ramp up to 250,000. If sales go well for the Passat and a crossover vehicle that VW plans to add to the plant (perhaps a replacement for the Tiguan crossover), it could then double the plant output on the factory site to build 500,000 vehicles a year. That would make it one of the single biggest auto plants in the U.S, comparable to Toyota's sprawling manufacturing site in Georgetown, Kentucky.

Volkswagen Was Once The Import King

Volkswagen's sales goals are ambitious, but stem from its own history. Volkswagen in 1970 was the leading import brand in the U.S with 577,000 U.S. sales, mostly Beetles; before Toyota, Honda and Nissan began their American surge with baby boomers. It is the number-one brand in Europe. And the Volkswagen Group, which includes Audi, Bentley, Skoda, Seat, Lamborghini and Bugatti brands, and soon Porsche, is the third biggest carmaker in the world after General Motors and Toyota.

To attract more customers, VW has been driving down the cost of its vehicles by sourcing its factories in North America, and making the cars a bit larger. The 2011 Jetta sedan, VW's top seller, built in Mexico and launched last Fall, has a starting price of $15,365 and is considerably roomier than the old model. Sales of the new Jetta are up 58% percent through May, compared with last year.

One of the primary obstacles to better sales for VW, say company executives, is the relatively poor showing VW has made on third party quality rankings from J.D. Power and Associates and Consumer Reports. In Power's most recent Initial Quality Study, which measures quality rated by buyers in the first three months of ownership, VW ranked well below industry average and 30th out of 33 brands.

VW's quality at its U.S. plant in the 1980s was so poor that buyers began specifiying they would only buy Rabbit hatchbacks made in Wolfsburg, Germany, and not the Pennsylvania plant. VW officials do not foresee that problem, especially since Mercedes-Benz and BMW build vehicles in Alabama and South Carolina respectively without losing quality. Indeed, the Tennessee plant has a chance to outshine VW's German plant.

To give it a better chance, VW hired a Toyota executive, Don Jackson, to run manufacturing at the Tennessee plant.

"There is no doubt that we have to do better with this vehicle than any Volkswagen we have sold before, and be competitive with or better than the competition in order to achieve what we want," says Fischer.

Experts say VW can improve quality and cut down on complaints if the company doesn't make to many engineering changes after it starts building the cars.

"The biggest enemy to German companies improving quality is their own tendency to make continuous changes to a vehicle after it starts being manufactured," says Ron Harbor, of industrial consulting firm Oliver Wyman, who has studied manufacturing plants for decades. "A lot of ongoing changes that translate to changes on the line tend to create problems."

The Passat, if it can score high with Consumer Reports and Power, has a chance to get into the same league with the stalwarts of the mid-sized sedan category: Toyota Camry, Honda Accord, Nissan Altima, Hyundai Sonata and even the new Kia Optima. While the exterior of the Passat seems conservative, the tailored silouhette and crisp lines of the sedan give it a well-tailored, rather than dull, look. On the inside, well-turned out wood trim on the SEL model ($28,395), top-notch seats and overall tight seams, fit and finish, and quality materials make the Passat a contender just in the aesthetics. The 400-watt Fender audio system is a first in the auto industry and give the whole package some added punch and appeal.

View Gallery: 2012 Volkswagen Passat

Try The Diesel

Powering the 2012 Passat is one of three engines-a 2.5 liter, five-cylinder engine producing 170 horsepower; a 3.6 liter V6 producing 280 hp; and a 2.0 liter TDI Clean diesel engine.

Despite the sub-$20,000 starting price, you can get still above $30,000 without too much trouble. The V6 SE packages, which include 18" wheels, navigation, leather seating, the Fender premium audio system, heated seats and few other amenities, will crest $30K.

The best values with the Passat? We think it's the SE with sunroof and navigation ($26,795), which gets you the smooth 2.5 liter engine, six-speed auto transmission, smartphone interface, heated seats, aluminum trim dash and leather-wrapped seats. The other good value is the TDI SE ($25,995), though that pricing does not provide sunroof and navigation. For that, you have to climb the ladder to $29,495. But the TDI engine, for the uninitiated, packs V6-like power and more than 40 mpg on the highway.

The Volksagen Jetta, a new version of which was launched last Fall, is VW's best selling model. But the hope is that the Passat will soon rival the Jetta for popularity and sales. The company, anxious to make a much bigger splash in America than it has in recent years, is also launching an all-new design of the Beetle this Fall, a model that is sure to drive a lot of showroom traffic that should benefit the new Jetta and Passat.

If the economy gives overall auto sales a little boost to help VW's new product onslaught, 2012 could be a year for VW to remember.

Bottom Line: The new 2012 Passat is a classy, very well-turned out car. By the time you spec it out the way you want it, though, it could still come at a price premium to a Camry or Fusion. Volkswagen's $1 billion investment in Tennessee to build vehicles for the U.S. is a smart and laudable investment. Like the 2011 Jetta, though, the Passat perhaps lacks some of the Volkswagen German engineering feel that has been a hallmark for enthusiasts and customers of the brand. Right now, we would say the driving dynamics are better than Camry, Accord and Fusion, but on par with Hyundai Sonata and Kia Optima.

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    • 1 Second Ago
      • 3 Years Ago
      It is not clear to me whether or not union workers will be employed at the new VW plant. Union workers, in every industry, have the same dynamics as non-union workers: some work hard and are productive, however most are not competent enough to carry out a task without being closely supervised. So what's the difference? Union wages are much higher than non-union wages, often twice the going rate of non-union wages. Basically, where union labor is required by law, the employer is paying much more than the labor is actually worth. This signifcantly reduces profit in any market. The use of union labor completely contradicts Common Business Sense. Unions are only still around because of the power that they have accumulated over the years by corrupting politicians and buying legislative protection like the Davis Bacon Act. The Davis Bacon Act in short, honest terms, does nothing more than require that a certain wage rate (a rate high enough to make union labor competitive with the otherwise untouchable non-union workforce) be paid to all workers on qualifying projects, such as those set forth by the American Recovery and Reinvestment Act. Therefore, anyone with the capacity to look at a set of events and decipher what's actually happening can see that these wage requirements are a form of payoff for the union support of Obama's successful run for the Presidency. Why else would a President who is supposed to be doing what is right by his country require unreasonably high wage rates that decrease the profits made by American businesses? There are few things as anti-American as that. Here is a little anecdote to sum up how honest, hard-working Americans feel: Today I ran into a friend who owns a mechanic shop that works on our forklifts from time to time. He was filthy and tired, as one would expect a mechanic to be. But, I noticed that he seemed to have aged a great deal in just a short amount of time. It had only been 6 or 8 months since his last service visit to our shop. We had a casual conversation about suffering bussinesses during the current recession, and before we parted he stated, "Obama was right when he said that he would bring change for Americans, because that's all I have left in my pocket [these days]." I believe that this is one of the simplist portrayals of America's dissatisfaction with current Government policy. Respectfully, American
        • 3 Years Ago
        Very well said. Though I do think it is funny that you use an article about the VW auto plant inTN and VW's new revised Passat as a platform to post your political views, no matter how spot on and correct you may be (and yes, You are spot on and correct). Maybe we should leave this forum to those intersted in automobiles and the manufacturing of those vehicles. People like you (and me and many millions of other americans) should take thier points of view to someplace where it counts... Your local polling booth. See you on the 1st Tuesday in November friend!
        • 3 Years Ago
        Clayton--your anecdote about your mechanic friend proves nothing other than your friend's misguided political bias, misplaced blame and wilingness to see himself as a victim rather than a survivor. Obama too has aged significantly since becoming President. For either of you to conclude Obama is to blame for the economic downturn or the costs of doing business today proves your collective ignorance or history and reality. If the unions were so instrumental in Obama's election as President, why did Bush win two terms, and his father one term and Reagan two terms, etc? If the unions contol which party controls the administrative and legislative branches of our Federal govt, why does "payoff for union support" not keep Democrats in control all the time? If you cared at all about including fact rather than bias to your post, you would research the validity of your statements before sharing them. The Davis- Bacon Act became law in 1931 (80 years ago) and was proposed and sponsored by two Republicans--Senator Bacon from Pennsylvania and Representative Davis from from New York and signed into law by Republican President Hoover. It has survived repeal for eighty years under leadership of both parties. And it does not pertain to employees in the private sector except when they work for companies contracted to do business with our govt. As an aside, the Glass-Steagall Act was enacted in 1933 and prohibited commercial banks from engaging in investment banking and vice-versa. The repeal of several regulatory provisions of that Act came in 1999 and was viewed as being favorable to business. Interestingly, the repeal was proposeded by two Republicans and signed into law by President Clinton, a Democrat. Not all legislation favorable to labor is supported by Democrats and opposed by Republicans, and not all legislation favorable to business is supported by Republicans and opposed by Democrats. If Obama is guilty of an anti-Amercan act as you suggest, then every Republican President since 1931 is equally culpable. Point 2: I hear and read complaints about businesses exporting American jobs overseas to improve their profits--greedy little buggers, though higher profits improve the value of corporate stock and directly benefit the financial well-being of individual investors as well as retirement funds invested to support Americans in retirement. Fact is, businesses export jobs to reduce labor costs and offer their products at prices that generate a profit and match or beat their competition. In many cases, union wage and benefit demands have priced their members out of the market and out of jobs. (more info in the next post...)
        • 3 Years Ago
        A candidate that runs a campaign which talks reality...the Federal govt must reduce spending and increase taxes, will not be elected. So again, generally, the American voter's motivation when supporting his/her leaders is self-serving and fiscally irresponsible. The invasions of Afghanistan and Iraq (and supplementat spending commitments each year since), the Medicare Modernization Act of 2003 (a govt subsidy of roughly $100 billion annually to reduce prescription drug costs for senior citizens regardless of their ability to pay, and the $700 billion TARP bill to rescue banks and insurance companies enjoyed bipartisan support. Yet leaders in neither party attempted to identify revenues to fund these incredibly large financial obligations. Though never stated, it was clearly assumed that the govt would simply borrow, thereby increasing the Federal debt. Likewise, neither the 2001 nor the 2003 Bush tax cut would have passed without support from both parties. And yet neither party addressed the issue of spending reductions to offset the decreases in revenues as a result of passage of the legislation. So, the Republican's mantra of balancing the budget by reducing Federal spending heard so often and so loudly today rings hollow when they ignored that fiscal philosophy with their support of spending increases and tax reduction legislation throughout Bush's presidency that has added, conservatively, almost $5 trillion to our Federal debt. Likewise, Democrats furnished the votes needed to pass tax cut and spending increase legislation with no consideration that eventually the Federal debt would rise to a level that demanded reductions in many govt programs and services that act as a safety net for millions of Americans who rely on those programs and services as well as increased taxes and benefit contributions to at least partially address the unsustainable increases to the Federal debt. Legislators and leaders in both parties are responsible for a reckless fiscal policy that must be addressed soon. But again most of the liability rests with American voters who selfishly supported candidates who promised a better tomorrow while ignoring their responsibility to produce and preserve a financially sound economic system, a strong military focused on defense, not offense, and funding necessary to protect the neediest among us. We have all been complicit in creating our current financial predicament. Playing the "Blame Game" takes energy and resources away from efforts and resolve to get our country healthy again.
        • 3 Years Ago
        These same American consumers who blame corporations for exporting their jobs overseas must in truth bear the majority of the responsibility. These same American consumers villify Wal-Mart for protecting its non-union status, thus subjecting Wal-Mart employees to wages too low to support their families without govt-financed programs that provide food stamps, medical benefits, housing, etc. The American consumer could change Wal-Mart's wage and benefit policies almost over night by refusing to shop there until those policies did change. Instead, American consumers spent $405 billion at Wal-Mart in 2010, which produced $14 billion in profits for shareholders. Americans could also change the current corporate policy to reduce labor costs by hiring non-union labor or hiring foreign workers for less. How? Commit to buying products "Made in the USA" whenever possible. Imagine for a moment what would happen if every American planning to purchase a new car or truck in the next year made the conscious decision to buy from GM, Ford or Chrysler (though Chrysler is owned by a foreign company...). The Big Three would enjoy an explosive increase in both sales and profits, would open and/or reopen plants on the US and hire tens of thousands of American citizens who would then have income to support other American businesses. However, both of these ideas would require you and me to be willing to pay more for our consumer purchases and to change the ego-driven attitude held by many that foreign products are superior in quality and status (eg. BMW, wines, clothing). In truth, we have "done it to ourselves" by constantly seeking the highest quality at lowest prices. "Buy American" and directly support fellow citizens who enjoy compensation and benefits that allow them to support their families, ultimately protecting and preserving your own job security. Boycott businesses that drive down prices, directly resulting in the failure of many smaller, family-owned companies unable to compete with prices offered at mega companies. Clearly, many products are no longer made in the US, so buying foreign products at times is a necessity. Finally, admit it or not, the Federal govt has been sustaining an artifically high standard of living for every American for decades, especially in the past 10-15 years. That is why we have a $14 billion Federal debt which continues to grow exponentially. We elect leaders who lie to us (tell us what we want to hear...more services and benefits with no increase in taxes). Republicans generally argue for lower taxes and reduced govt spending. But regardless of what program or benefit is proposed for reduction or elimination, those impacted cry foul. Democrats generally argue for higher taxes and increased govt spending, but only if the tax increases come from other individual and/or corporate taxpayers. Continued in next post...
      • 3 Years Ago
      I'll stay with my Fusion at 36 city and 41 hwy and fully loaded including great sound and sun roof at less than $26,000 I dont think VW can match the car for the price.
      • 3 Years Ago
      crap is crap
      • 3 Years Ago
      Another example of a "Right to work" state helping to create jobs for Americans.
      • 3 Years Ago
      Although "American" car components may or may not be made in the US, corporate profits from the sales of those cars remain in the US. Not so for VW, Mercedes, BMW, Toyota, etc.
      • 3 Years Ago
      My daughter turned 16 last month and there was just no way we could afford to add her to our existing car insurance policy. I started shopping around for new car insurance and found this site: ( http://tinyurl.com/FreeRateReport ) I just put in my ZIP code and received four quotes instantly after filling out the form. By comparing rates we were actually able to include my daughter in our new policy and not pay anymore per month for car insurance than we were originally paying for just me and my wife!
      • 3 Years Ago
      I own a '09 Jetta. Traded in a '02 Beetle and got a great deal. Only complaint? The media system. Please VW, just let us play our I-Pods with a standard aux jack- if you correct that- perfection!
      • 3 Years Ago
      Sen Corker,Sen Alexander and a nobody Congressman named Fleshmen plan to do to Vw what they did to Saturn. Run their union asses out of the state. Seen the Das Auto est guten.
      • 3 Years Ago
      Why is this sorry goverment allow this companies here in the first place. let's try to go to Japan and see if we can pull the same deal, not a chance.
      • 3 Years Ago
      Anyone out of work, any state looking to provide jobs willing to say no to any company willing to take a chance on us? 30 years of jobs is better than than nothing. Ask the starving ex union workers, would they have worked for a few bucks less to keep thier home, feed thier kids? When they lost everything, did the union bosses let them stay at thier mansions until they got on thier feet. As ex working men, did they receive welfare help? Its sad when a foriegn company is willing to invest in America and American companies run or are run off by government officials.
        • 3 Years Ago
        The American companies were run off by the unions that priced their members right out of a job by the exorbanant demands of high wages, benefits and overall number of extra employees. The companies were obligated to their shareholders to provide them with dividends and profits to stay in business, so they went to areas of the USA and foreign countries that had open shop laws or no unions. Where did the government officials run the workers off and when? The government wanted to keep the companies and jobs here to collect taxes from them and get votes from the happy workers. Think about it.
        • 3 Years Ago
        first of all jim, you moron. the word is THEIR. not thier. dumbass. why cant repugs spell? ive never seen or heard of a union boss mansion. the unions didnt kill the american auto industry. the people at the top did. germany has auto unions. they didnt lay off anyone, while our "big 3" were kicking workers away left and right. also german CEO's dont make INSANE amounts of money. i dont know of any CEO's in the world that make the greedy sums ours do. you repugs bitch about a man with skills making $25 per hour with health insurance and maybe a 2 week paid vacation and a retirement program BUT think some dumbass running/ruining a company into the ground and is paid $25,000,000 a year is a great guy!!!! get off your knees BOY! open your eyes. why do you repugs "worship" the billionaires? did you know that warren buffett is a democrat? a repug friend of mine (yes, we can disagree and still be friends) told me that warren buffett and bill gates charity is a big SCREW YOU to america. my friend is a CPA. buffett and gates are going to donate, probably over $100 billion to charity when they die or retire. thats a 100 billion that wont be taxed AND most likely WONT be spent here, but in places like africa. sure screw all the poor american kids that end up in gangs, lets take care of other countries.
      • 3 Years Ago
      My daughter turned 16 last month and there was just no way we could afford to add her to our existing car insurance policy. I started shopping around for new car insurance and found this site: ( http://tinyurl.com/InsuranceTip ) I just put in my ZIP code and received four quotes instantly after filling out the form. By comparing rates we were actually able to include my daughter in our new policy and not pay anymore per month for car insurance than we were originally paying for just me and my wife!
      • 3 Years Ago
      VW still stands for one thing, junk.
        R L Baker
        • 3 Years Ago
        Is that why the early "BUG" out sold (total numbers) the Ford Model A.
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