VW still undecided where to build new midsize crossover in North America

Article by Christian Andrei, on June 4, 2014

Volkswagen AG has already decided to build a crossover in North America. The problem, however, is that it has yet to decide where specifically it would build the vehicle. The financial incentives offered by Mexico and Tennessee are delaying a decision by the German carmaker where to build the midsize crossover.

The tug-of-war is also delaying VW’s efforts to revive its slumping sales in the United States. Sources told Reuters that the state of Tennessee has revived discussions with VW over tax breaks and infrastructure to make the carmaker to build the model in Chattanooga, where it already has a plant.

The revival of the talks comes as Mexico has offered incentives for VW to produce the crossover in a site in its territory. Two sources told Reuters that with the talks ongoing, VW may decide on a production site for the crossover at least until the end of June.

Sources divulged that the carmaker had initially expected to have decided on the venue by now. VW unveiled the midsized crossover at the 2014 Detroit auto show as part of a $7-billion investment package for North America.

Arndt Ellinghorst, an analyst at ISI Group, remarked that the German carmaker “taking way too long again” to tackle another pressing problem in the US. He noted that since the crossover will be a “gainful addition” to VW’s portfolio, the carmaker has no time to waste.

The carmaker saws deliveries of its VW brand drop 7 percent in 2013 and 10 percent in the first four months of 2014 – in contrast to the US market that posted growths in the periods.

Considering VW’s usual development cycles, the carmaker may not roll out the crossover in the US until 2016 -- around five years after the group introduced its mid-sized Passat saloon.

VW’s US lineup has so far been limited to compact Tiguan and the mid-sized Touareg, which price is even higher than the premium Lexus RX. Analysts have seen SUVs as a way for VW to grow in the US.

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