Tennessee Firm Files Chapter 7 Bankruptcy After Volkswagen Contract
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Tennessee Firm Files Chapter 7 Bankruptcy After Landing Big Volkswagen Contract

In December, Tennessee’s Southern Fabrication Contractors got the big news that it had landed a contract with Volkswagen to work on building their new, billion-dollar plant.

The good news, however, didn't last long. According to an article from The Chattanoogan, however, the firm has announced that it will file for Chapter 7 protection not long after being recognized as an example of a local firm benefiting from Volkswagen's arrival. 

It was not long ago Chattanooga Mayor Ron Littlefield, and Hamilton County Mayor Claude Ramsey appeared with Volkswagen Chattanooga President Frank Fischer at the Southern Fabrication Contractors headquarters. The executives called attention to the local jobs that were resulting from construction of the nearby Volkswagen plant. They praised the 35 local jobs that the contract with VW would add to the local economy.

Volkswagen chose Chattanooga, Tennessee as the site for its new auto plant back in July of 2008.It would be the company's first American plant since closing one in the early 1980s.

The manufacturing site, according to USA Today, was to create around 2,000 jobs. VW announced that it would invest $1 billion into the American economy by producing a sedan that was geared specifically towards American consumers. Production from the almost $1 billion plant is scheduled to start in 2011.

In the meantime, VW must determine how it will proceed in light of the bankruptcy of one of its contractors. Officials for Europe’s largest car company said recently that they are evaluating the situation, but did not expect it would cause any delays in completing of the new facility.

Southern Fabrication Contractors had been working on the VW paint shop, which was providing work for two 12-hour shifts. In addition, said Southern Fabrication head Mike Potter, the company had nearly doubled its workforce, employing 110 people. The paint shop project will still be completed by the fall, on schedule, VW said.

According to The Chattanoogan, sources indicated that Southern Fabrication had trouble with the paint shop project. The company began failing to make payments to suppliers and employees. They quickly became delinquent on nearly $2 million in bills. Finally, suppliers and subcontractors at the firm agreed to a debt repayment of 50 cents on the dollar, and Southern Fabrication filed for Chapter 7 bankruptcy protection.

In the filing, Southern Fabrication listed assets between $1 and $10 million, and liabilities between the same range. One of the VW plant’s paint shop construction contractors, Eisenmann AG, had awarded a part of the fabrication and installation of steel support to Southern. Eisenmann also awarded subcontracting work to other U.S. firms.

At the time of the agreement, the Volkswagen director of purchasing for the company in the U.S. announced that the contract was a part of an “intense effort to deliver as much economic impact to Chattanooga and Tennessee as possible.” There was a stated goal to gain 20 percent local participation on the plant. According to VW, the car company well exceeded that goal, with “local content” making up $287 million brought to local firms.

The effort of VW to pump money into the local economy was represented by the Chattanooga Volkswagen Team, which was a community liaison group assigned to build partnerships with local Tennessee businesses.

Potter, who The Chattanoogan was unable to reach, said at the time, “we’re pleased to have this opportunity to work right here at home.”

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