VW may prefer Mexico over Chattanooga to build new model, report says

VW officials from the Chattanooga plant in the U.S. say they’re fighting with the German automaker so that production of a second vehicle is added to the facility.

Currently, the Chattanooga factory makes the U.S. Volkswagen Passat sedan. However, a lack of free trade agreements between the U.S. and other countries may send future VW production to Mexico instead of Tennessee, according to industry experts quoted by Bloomberg. Mexico has free trade pacts with 44 countries, while the U.S. has 19.

As a result, cars built in Mexico can be exported to more countries without the manufacturer having to pay import duties, which can add up to 10 percent to the price of a vehicle. For the same reason, Audi chose to build its new plant in Mexico rather than in the United States.

VW’s luxury-car unit announced in April it will build the factory in Mexico to make a sport utility vehicle, reportedly the Q5, by 2016. A site next to VW’s Chattanooga plant had been reportedly eyed as a potential location for the plant.

According to Bill Hagerty, state economic and community development commissioner, Tennessee competed for the project, but its efforts were hurt by trade issues beyond the control of state and local officials.