Workers at the Volkswagen plant in Chattanooga turned their back on an organizing bid by the UAW.

Reeling from its loss in a representation election at the Volkswagen plant in Chattanooga, Tennessee, the United Auto Workers Union is taking a look at its strategic options in the wake of the bitter defeat.

UAW leaders said they will review all of their legal options – following the loss by a margin of just 866 votes — and will consider mounting a legal challenging the results which cost the union a chance to represent workers at the VW plant. The election was supervised by the National Labor Relations Board.

The stinging setback underscores a decline for unions in general, according to Gary Chaison, a labor law professor at Clark University in Massaachusetts, who told Bloomberg it “seems as if it’s just a continuing spiral of decline for the American labor movement.”

Workers at the German automaker’s plant voted against the UAW in a three-day election that ended Friday by a margin of 712-626.

(For more on the VW plant vote, Click Here.)

UAW President Bob King sharply criticized Tennessee politicians who he said scared workers away from voting in favor of union representation. King had said last month the UAW had solid indications of support from a majority of the more than 1,500 workers who had an opportunity to vote. It has also had the active support of IG Metall, the German metalworkers union, which campaigned openly for UAW representation.

That support began to decline in the days leading up to the government-supervised vote as the state’s political leaders actively warned that a vote in favor of the UAW would make Tennessee less attractive to other manufacturers and could jeopardize Volkswagen’s plans to expand its factory there.

Describing himself as “outraged by the outside interference in this election,” UAW President King said shortly after the voting ended, “It’s never happened before that a U.S. senator, a governor and a leader of the House of Representatives threatened the company and threatened the workers” during a union election.

(Chrysler’s UAW workers get $2,500 profit-sharing checks. Click Here for details.)

Sean McAlinden, vice president of research for the Center For Automotive Research in Ann Arbor, said the defeat was a huge “strategic” setback for the UAW, which has been trying to organize workers at the transplants for nearly three decades.

The conservative political establishment in Tennessee used Detroit’s negative image against the union, he said, linking last summer’s bankruptcy filing by the City of Detroit and the 2009 bankruptcies of General Motors and Chrysler to the UAW as a culture of failure that VW workers should avoid.

The results in Chattanooga were the same as the outcome of the last NLRB-supervised vote when the UAW attempted to organize the Nissan plant in Smyrna, Tennessee. The only consolation was that the margin of defeat at VW was smaller, the UAW losing in Smyrna by a 2-to-1 margin.

After the vote in Smyrna, the UAW leadership concluded the NLRB election process, which gives employers wide latitude, was heavily stacked against unions. At VW, however, the UAW, with the help of IG Metall, had effectively neutralized the anti-union position of Volkswagen of America’s management, which was forced to the sidelines.

Now, however, the results of the VW election may have reverberations back in Germany.

“Remember that the largest shareholder of VW is the German State of Lower Saxony. (There) could be pressure by IG Metall and they could put the hammer on future investments as a result of (Tennessee’s) conduct,” noted John Russo, a researcher on labor issues at Virginia Tech University.

VW has been delaying a final decision on where to build its planned midsize CrossBlue crossover-utility vehicle, with both the Chattanooga plant and another in Mexico in the running.  The U.S. factory has been considered the more likely choice but, ironically, while anti-union forces argued the UAW would cost Tennessee jobs, there are rumors VW could now be pressured by its German unions to put the CrossBlue into Mexico.

Meanwhile, the Passat being built in Chattanooga, has been struggling against stiff competition in the midsize sedan segment.

That would be small consolation for the UAW which had hoped a victory in Chattanooga might energize organizing drives at other plants in the South. It has a campaign underway at the Nissan plant in Canton, Mississippi and has been attempting to enlist support at the Mercedes-Benz plant in Vance, Alabama.  So far, however, the union has been reluctant to call for an election at either plant.

(For more on the union effort to organize the “transplants,” Click Here.)

“Despite recent efforts to align with its European counterparts the UAW couldn’t convince a majority of workers to endorse union representation,” noted Kelly Blue Book analyst Karl Brauer. “While far from a death knell, this latest defeat suggests a turbulent future for an organization that has steadily lost membership and influence over the past four decades.”