BERLIN - Volkswagen AG, Europe's biggest carmaker, plans to build a plant in Chattanooga, Tenn., resuming manufacturing in the United States to help VW end more than five years of losses in the world's largest auto market.
The supervisory board approved an investment of as much as $1 billion in the factory, which will begin production in early 2011, employ 2,000 workers, and initially build a midsize sedan developed for the United States, the Wolfsburg, Germany-based company said yesterday.
The plant will be Volkswagen's first in the United States since it closed a factory in Westmoreland County, Pennsylvania, in 1988. US production is part of chief executive Martin Winterkorn's strategy to boost sales and reduce the effect of the sinking dollar, which makes the carmaker's vehicles more expensive in the United States.
"Volkswagen needs the factory to reduce its exposure to the dollar and develop products for the US market," said Georg Stuerzer, a Munich-based automotive analyst at Unicredit.
The Chattanooga plant will have an initial annual capacity of 150,000 vehicles and will include body production, a paint shop, and assembly operations, Volkswagen said. The site was chosen over Alabama and Michigan because it has a better infrastructure, a good supplier base, and a qualified workforce, the carmaker said.
Proximity to suppliers of factories operated by German automakers Bayerische Motoren Werke AG in South Carolina and Daimler AG in Alabama "was absolutely a factor" in Volkswagen's site choice, said David Cole, chairman for the Center for Automotive Research in Ann Arbor, Mich. Volkswagen probably will also build an engine plant in the region, he said.
Volkswagen rose 2.3 percent in Frankfurt and has gained 12 percent this year, valuing the company at $95.2 billion.
North America is crucial to Winterkorn's plans to boost worldwide deliveries to 8 million vehicles in 2010 from a record 6 million last year and eventually match Toyota Motor Corp. in sales and profitability. Volkswagen is the world's fourth-biggest carmaker, behind General Motors Corp., Toyota, and Ford Motor Co.
Volkswagen's US expansion will add pressure on GM, Ford, and Chrysler which are reeling as consumers turn from large trucks and sport-utilities as gas tops $4 a gallon.