CHATTANOOGA, Tenn. (AP) -- Volkswagen picked Chattanooga over rival sites in two other states for a new U.S. assembly plant expected to create about 2,000 jobs.
Volkswagen Group of America Inc. said it will produce a new midsize sedan designed specifically for the North American consumer and invest $1 billion in the economy.
Sites in Alabama and Michigan were also considered for the plant, which is part of Volkswagen's strategy to increase its presence in America. Volkswagen. Europe's biggest automaker, closed its last U.S. production facility in 1988.
Christian Wulff, the governor of Lower Saxony and a member of VW's supervisory board, told The Associated Press that the company picked Chattanooga after the board debated the merits of the location and its benefits.
The company statement said the plant near the Georgia and Alabama borders would create 2,000 direct jobs and "add a significant number of jobs in related sectors."
A statement from parent Volkswagen AG said the company approved up to $991.4 million to build the facility, with the plant aiming for a capacity of 150,000 cars a year. It plans to start production in 2011.
Tennessee officials have not released details of what it is giving Volkswagen but the company's statement said the "incentives are tied to job creation and capital investment. Additional support includes assistance for public infrastructure and job training..."
VW picked Tennessee 25 years after Nissan Motor Co. became the first foreign automaker in the South at Smyrna.
"Chattanooga is an excellent fit for the Volkswagen culture, having an exceptional quality of life and a long manufacturing tradition," said Stefan Jacoby, President and CEO of Volkswagen Group of America.
The 1,350-acre site at Enterprise South Industrial Park near interstates 75 and 24 between Nashville and Atlanta has long been seeking an auto assembly plant.
Chattanooga previously lost out on the $1.3 billion Toyota Motor Corp. plant that is being built near Tupelo, Miss., and the $1.2 billion Kia Motors Corp. plant that went to West Point, Ga.
Volkswagen holds only a 2 percent share of the U.S. market. VW officials have said the company intends to more than triple its U.S. sales to 1 million by 2018.
The German state of Lower Saxony owns more than 20 percent of Volkswagen.
Wulff said the new plant in the U.S., in addition to its factories in India and Russia, is part of the company's strategy to become the world's No. 2 automaker.
The automaker has said the surging euro has pushed along plans for a new production facility. The 15-nation currency hit a record high of $1.6038 on Tuesday, making goods exported from Germany more expensive in the United States.
While competing against Alabama and Michigan, Tennessee officials in recent weeks approved $1.25 million for work at the Chattanooga site that was once part of an Army ammunition plant complex. State officials have not released the incentive package that was used as bait to attract Volkswagen.
Also, the South offers ample highway and rail connections and hundreds of existing suppliers but its main attraction is a pool of workers who have shown at other European and Asian assembly plants that they can live without the United Auto Workers.
Industry executives and analysts have said there is plenty of room for more auto makers in the region, as long as the plants are at least 40 or 50 miles apart to avoid competing for skilled workers.
Volkswagen earlier this year relocated its North America headquarters from suburban Detroit to northern Virginia.
Volkswagen's only other North American plant is in Puebla, Mexico. The company closed its last U.S. production facility near Pittsburgh in 1988.
Foreign auto assembly plants closest to Chattanooga are Honda in Lincoln, Ala.; the plant Kia Motors Corp. is building at West Point, Ga., and Nissan at Smyrna, all about 100 miles away. Tennessee is also corporate home to Nissan North America, which dedicates a new headquarters July 22 in the Nashville suburb of Franklin.
Shares of Volkswagen, whose brands include VW, Audi, Skoda, Bentley, Bugatti and Seat, were up 2 percent to 173.71 euros ($276.18) after the announcement.
AP Business Writers Matt Moore and George Frey in Frankfurt, Germany and Antje Homburger in Hamburg, Germany contributed to this report.