Expert discusses impact of Volkswagen on community

Hamilton County Herald, Friday, January 16, 2009
By David Laprad

Chattanooga has been given a gift. In the midst of economic pangs being felt across the country, its residents have a reason to look toward the future with more than a little hope. Never mind the plant closings and mass layoffs announced daily or the fact that the collapse of the Detroit automotive industry is no longer unthinkable — this city, which has worked hard to reinvent itself, has received one of the largest direct foreign investments in the U.S. in a long time.

But who will benefit as a result of German automaker Volkswagen setting up shop inside city limits? And how?

Kevin Krause, managing partner of Atlanta-based executive recruiting firm BaxterKrause, offered some ideas during a breakfast meeting with the Downtown Council of the Chattanooga Area Chamber of Commerce on January 8.

“You have a beautiful city. And one of the most popular brands in the world is coming here. That’s going to equal growth,” Krause, who’s worked in the German automotive industry, said. “But most of you are wondering whether or not your community, company and family can profit. The answer is yes, you just need to understand how.

“The best part about the future is it comes one day at a time,” he continued. “So instead of worrying about 2010 or 2014, start thinking about what you can do today. I’m going to Atlanta tonight to talk with people about 28 suppliers that are coming to your city. That’s happening now.”

To figure out how to profit from the industry coming to town, Krause said companies must learn about automotive clusters — the collection of businesses and support systems that surround a vehicle manufacturer. “You need to understand how this industry thinks and moves,” said Krause as he loaded a chart of an automotive cluster on a large screen.

Before explaining the diagram, though, Krause dispelled the notion that Chattanoogans would be landing many of the 2,000 jobs Volkswagen said it plans to fill. “That’s a hard fact, but they’re going to need special skills, and Chattanooga is a service-based city. A lot of those people are going to come from other places. They’re going to come from the north because it’s starting to unravel. You’re going to have a lot of Yankees running around.”

However, Krause said as many as 16,000 people could be hired in the supplier community and another 10,000 in the service community. The economic impact would be greater than what happened when BMW set up shop in Greenville, S.C., and gave new life to a dying city. Today, the BMW plant there supports 23,000 jobs and has an economic impact of more than $8.8 billion — and the VW plant coming to Chattanooga is slated to be nine times the size of the one in Greenville.

“Look at all of the suppliers that have come to South Carolina since 1990. I don’t know if you understand what happens when a company enters an area, but it needs real estate, lawyers, financial planners, recruiters, human resources, logistics and distribution. And when you pile all of that on top of the companies coming here, you’re going to have a lot of business on your hands.”

Krause then turned to his chart, which contained a crowded array of boxes, with the largest representing Volkswagen. “You’ve got an OEM, in this case VW, and three kinds of companies directly touching the OEM,” he said.

The first company, known as a sequencer, transports all the parts from suppliers to the manufacturing facility and makes sure they arrive on time. “It’s an amazing thing. So instead of dealing with all of the OEMs and suppliers, VW will funnel everything in through one or two sources — and pop! Seats, bumpers, lights and full front-end assemblies will hit the facility, and VW will just bolt them right onto the car. Those companies are going to need facilities here and they’re going to have to hire people.”

The other two companies that will directly touch Volkswagen will be Tier One and Tier Two automotive suppliers. Tier One suppliers are companies that make products specifically for an OEM, such as the front-end assembly Krause mentioned; Tier Two suppliers makes products for Tier One companies, such as the bolts that hold the assembly together. Krause said Volkswagen would be using plenty of both.

Given that Chattanooga has become a service-based city, Krause said a significant number of outside suppliers would be setting up operations in the area to provide the materials, machinery and everything else needed to create a car. He dismissed concerns that Chattanooga would see a return to its smokestack days, saying most of the technologies will be clean.

Krause’s diagram also included several support systems, such as the previously mentioned distribution and logistics. Jobs will also be created in these areas. “I had a meeting yesterday with the president of a worldwide logistics company. He said he’s going to need 20 to 40 people in Chattanooga within two to three years. And that’s just one logistics company. There will probably be seven or eight of them.”

At the bottom of Krause’s automotive cluster were the associations, government entities and educational infrastructure of Chattanooga, all of which will support Volkswagen.

Krause ended his discussion of the automotive cluster by encouraging business leaders to begin thinking about how their community, companies and families can profit from what’s coming.

“Apply this map to your business and work out what you can do for a distribution company. And then establish which ones in the U.S. you can start doing business with now so that when they move here, you’ll have an in.”

He also reminded his listeners that the ripple effect of the automotive cluster would expand farther than the details he’d discussed.

“Don’t forget about accounting, legal services and real estate. Thousands of families are going to be moving here. They’re going to need homes. They’re going to expect things from their community, he said.

“Get creative. The economic cluster is already here, you just don’t know it. All this stuff is happening, and you’re the architect of your own fortune.”

Reprinted by permission from the Hamilton County Herald