Dollar keeps falling, but Tennessee is rising

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A few months ago, we reported in this space that there is a silver lining in the generally depressing story of the plummeting U.S. dollar: the corresponding rise of the euro is dramatically increasing the cost of manufacturing cars in Europe, leading overseas car makers to take a close look at shifting production to the United States.

German auto giant Volkswagen has now put an exclamation point on this trend with its announcement that it will locate its new car plant in Chattanooga, TN. VW closed its last US plant, in Pennsylvania, in 1988.

The increasing cost of European car production was cited as a major factor in VW’s decision to locate its new plant in the U.S. The Tennessee site was declared the victor after an intense competition with locations in Alabama and Michigan.

VW’s move is expected to pump more than $1 billion into Tennessee’s coffers. ”This project will have a significant impact on the economy of Tennessee and the region for decades to come,” Gov. Phil Bredesen declared in announcing the news.

Tennessee officials are predicting that the arrival of Volkswagon eventually may put the state in position to become the overall leader in U.S. car production in coming years.

When it is fully operational in 2011, the new plant will employ 2,000 people directly as well as offering business to hundreds of suppliers. The new facility will eventually have an annual capacity of 150,000 vehicles and will be used to build a new midsized vehicle for the U.S. market.

VW said its decision also was based on a range of factors including financial incentives offered by the state linked to job creation, investment and training.

Currency exchange rate fluctuations—the euro is now worth almost $1.60—in the past two years have made European carmakers look for cheaper production solutions. VW also is building plants in India and Russia.

So perhaps all those reports of the impending demise of U.S. auto manufacturing you’ve been reading in recent years were a bit premature.

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