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Volkswagen to Set Up $1 Billion Car Plant in US

Volkswagen, Europe's biggest car maker, has said it plans to build a 620 million euros ($1billion) factory in Chattanooga, Tennessee in a bid to boost the German automaker's lagging US sales.

The VW sign of a Volkswagen garage is seen in Hamburg, northern Germany

Europe's largest carmaker is stepping on the gas in the US market

The site, one of at least two in the US South that Volkswagen examined, was picked by Volkswagen Group's supervisory board.

The plan calls for the first cars to roll off the assembly line in 2011. Europe's biggest carmaker has failed for years to achieve profits in the United States, where Asian competitors have regularly upstaged its range of mass-produced front-wheel drive cars.

"The United States is an important market for our volume strategy," Volkswagen CEO Martin Winterkorn was quoted as saying.

"Volkswagen will be extremely active there," he pledged, the same day that US giant General Motors warned of "significant" second quarter losses and unveiled a fresh restructuring and cost-cutting program to battle slumping sales.

"We will be selling 800,000 Volkswagens per year in the US by 2018, and this new site will play a key role," Winterkorn forecast.

VW had been searching for the location of an assembly line to protect it from a relentless rise of the euro that has affected profits in North America. Making cars in the eurozone and selling them for dollars has cost European automakers dearly.

"This, along with our growth strategy, is a pre-requisite for the economic success of the company in the dollar region," Winterkorn added.

Earlier Tuesday, the single European currency set a new record above $1.60 as the greenback was hit by mounting fears over the stormy US economic outlook, dealers said.

VW to employ 2,000 local workers

Workers adjust interior of VW Polo car at the VW factory in Bratislava, Slovakia.

VW will continue its policy of hiring a local workforce

The VW statement added that the automaker also wanted US customers to perceive it as a domestic manufacturer. VW said it would hire around 2,000 workers to work at the Chattanooga plant.

The German auto giant already has a plant in Mexico but it does not make enough cars to supply all of North America, where VW currently has a market share of around two percent.

The group wants to at least triple that figure within 10 years and said Tuesday it would produce a new midsized sedan "tailored specifically to the US market" at the new plant.

VW has already begun to restructure activities in the United States, which have posted losses for several years.

In addition to vehicle production, distribution and marketing activities are covered by the measures.

General Motors forecast significant losses

Plant workers picket outside the General Motors Saginaw Metal Casting Operations Plant in Michigan

Strikes have hit General Motors' productivity this year

In Chicago, GM said that strikes, a soft market and an "adverse vehicle segment mix" would result in a significant second-quarter loss.

Those losses would be deepened as a result of "significant charges" GM expected to report related to a massive restructuring program of its own initiated in 2005.

GM has already cut its US workforce by more that 40,000 employees as it shuttered plants in the wake of losses which have topped $54 billion since 2005.

Investors welcomed the news and shares in the German group closed on Tuesday with a gain of 2.34 percent at 174.23 euros.

The Dax index of leading shares was off by 1.91 percent overall at 6,081.70 points, the first time it had fallen below 6,100 points since October 2006.

Other German carmakers to join in

Volkswagen is not the only German company to increase its production output in the United States.

By 2012, luxury automaker BMW plans to invest a billion dollars in its distribution network and its plant in South Carolina will increase output by 50 percent to 240,000 vehicles per year, news agency AFP reported.

Stuttgart-based Daimler already has several factories in the United States, in particular for heavy trucks, and its car plant in Alabama rolls out around 180,000 units a year.

In all, German companies have a US market share of around six percent with more than 900,000 units sold per year, of which only around one quarter are built on the continent.

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