* Crossover site decision could take until end-June
* Level-pegging between Chattanooga and Mexico
* Audi's new Mexico SUV plant also a candidate
By Andreas Cremer
BERLIN, June 2 A tug-of-war between Mexico and
Tennessee over incentives is delaying Volkswagen's
decision on where to build a make-or-break vehicle in North
America, sources said, delaying the German group's efforts to
fix its ailing U.S. business.
Last week, the state of Tennessee reopened talks with VW on
tax breaks and infrastructure to lure the firm to build a
midsize crossover at its Chattanooga plant, after a pitch by
Mexican authorities, sources told Reuters on Monday.
Level-pegging between Chattanooga and Mexico means it could
take at least until the end of June for VW to pick a production
venue, either its $1 billion Chattanooga plant or a site in
Mexico, two sources familiar with the matter said.
VW had initially hoped to take the decision by now, sources
said. It announced the crossover - combining features of a car
and a sport utility vehicle - at the Detroit auto show in
January as part of a $7 billion investment package for North
"VW is taking way too long again to tackle another pressing
U.S. problem," said Arndt Ellinghorst, London-based analyst at
ISI Group. "The crossover will be a gainful addition to their
portfolio, VW has got no time to waste."
Following a 2011-12 sales surge, U.S. deliveries of VW's
core passenger car brand slumped 7 percent last year and were 10
percent down in the January-April period this year at 118,154
vehicles, even as the world's No. 2 auto market kept growing.
Given typical development cycles, the crossover might not go
on sale in the United States until 2016, five years after VW
launched its locally-made midsize Passat saloon.
Analysts have long urged VW to expand its U.S. lineup,
especially on SUVs where offerings are confined to the compact
Tiguan and the mid-size Touareg, which at $44,570 is almost 10
percent more expensive than the premium Lexus RX from Toyota.
The German group, seeking to almost double sales of
VW-badged vehicles to 800,000 by 2018, hopes to eclipse Toyota
as the world's biggest carmaker.
Tennessee had offered the German manufacturer a $300 million
package of incentives to assign the vehicle to its only U.S.
plant. But state governor Bill Haslam withdrew the offer amid a
February vote by factory workers on unionization.
Sources gave no information about details of incentives
discussed between VW and Tennessee officials, but said the state
needed to top a package already pledged by authorities in
VW confirmed that incentive talks with Tennessee were under
way, declining to elaborate.
VW recently spent $700 million to upgrade its Mexican plant
in Puebla for assembly of the revamped Golf hatchback, which
started in January. The plant employs about 15,000 workers who
also assemble the Jetta and Beetle models.
A decision to manufacture the crossover in Puebla would be a
surprise as VW's management has all along prefered its Tennessee
plant over the 50-year-old factory, sources said.
Assigning the model to Chattanooga would be good news for a
site where dwindling demand for the Passat last year caused VW
to cut about 500 jobs.
One of the sources said it was also conceivable that VW
might give the nod to a new factory built by its luxury division
Audi in San Jose Chiapa, about 35 miles from its ageing Puebla
facility. The Audi plant will be designed to assemble the Q5 SUV
Audi declined to comment.
(Reporting by Andreas Cremer)