VW lays off 500 in Chattanooga as Passat sales fall short

VW lays off 500 in Chattanooga as Passat sales fall short

Gabe Nelson
Automotive News | April 19, 2013 – 10:23 am EST
WASHINGTON — Volkswagen is eliminating 500 contract jobs and reducing work shifts at its new assembly plant in Chattanooga, Tenn., to ease an oversupply of the Passat sedan.

The move is a small setback for Volkswagen, which reestablished a manufacturing presence in the United States as part of a plan for meeting ambitious sales goals. The company opened the Chattanooga plant in 2011, its first U.S. assembly plant since closing a Pennsylvania factory in 1988.

Sales of the redesigned Passat have not been able to justify running the plant at its current pace.

“We had too high expectations,” Frank Fischer, the head of Volkswagen’s Chattanooga operations, told the Chattanooga Times Free Press. “The pipeline is over-full from the facility to the dealers.”

The plant is currently running two 10-hour shifts daily from Monday to Saturday, using three teams. By May 13, the plant will cut back to two teams, which will run two 10-hour shifts from Monday to Thursday.

The current three-shift system has an annual capacity of 170,000 cars, more than the initial planned capacity of 150,000, a Volkswagen spokesman said.

Sales and inventory

Volkswagen sold 117,023 Passats in the United States in 2012, the plant’s first full year of production, up from 22,835 a year earlier. It sold just under 26,000 of them in the first three months of 2013, a 6 percent increase, though sales fell in March.

As of April 1, the Volkswagen division had an average days’ supply of 97 vehicles on dealer lots, above the industry average of 60 days, according to the Automotive News Data Center. The average was 63 days for European automakers and 48 days for Japanese companies.

“The team members at VW Chattanooga have successfully met the needed market introduction volume, matching higher than estimated sales demand and filling the sales pipeline,” Volkswagen’s statement said.

“Initial increased labor demand of the new plant, which started producing a new product with new suppliers and a new workforce, has been offset by increased efficiency.”

With the layoffs, which will be complete by June 30, total employment at the Chattanooga plant will drop from about 3,200 to about 2,700.

Working out the bugs

AutoPacific analyst Dave Sullivan said that when a new plant starts production, companies often bolster staffs to deal with various launch issues.

“As you’re trying to ramp up production, the plant has also gotten a little bit more efficient as time has gone on, as they work out the issues of launching a new plant with a new workforce,” he said.

“The two shifts are a lot more efficient than they were a year ago, so there’s less need for people,” he said. “The plant has fixed their quality issues, and the throughput is getting better.”

About 100 contract workers from the staffing company Aerotek will stay at the plant. Some of them will transfer to VW’s own payrolls.

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