The verdict is in! Tennessee beats out Alabama and Michigan in a high-stakes competition for VW's new assembly plant.

A worker assembles engines at VW's assembly plant in Chenmitz, Germany.

Volkswagen AG (Wolfsburg, Germany) announced today that it will build a new assembly plant in Chattanooga, TN.

VW expects to spend $1 billion on the new facility, which is scheduled to begin vehicle production in early 2011. The facility will be located on a 1,350-acre site in the Enterprise South Industrial Park. The plant will include a body line, a paint shop and assembly operations. With an initial production capacity of 150,000 vehicles per year, the plant is expected to employ approximately 2,000 people. Additional jobs will be created by supplier and logistics operations.

The first vehicle to be manufactured at the facility will be a new midsize sedan tailored specificallly to the U.S. market. “This plant represents a milestone in Volkswagen’s growth strategy,” says VW CEO Prof Martin Winterkorn. “We will be selling 800,000 [passenger automobiles] in the USA by 2018, and this new site will play a key role.”

Some 25 locations were on VW’s short list for the facility, including sites in Michigan and Alabama. VW chose Chattanooga because it slightly outperformed the next best candidate in terms of existing infrastructure, nearby component suppliers, qualified workers, and the availability of approximately 550 hectares of developed property with direct transport connections.

By manufacturing cars in Tennessee, VW hopes to boost flagging U.S. sales, which can be attributed, in part, to the strength of the euro compared with the dollar. At press time, $1 was worth 0.62 euro, making European-made goods inherently more expensive than domestic products. VW also hopes the facility will enable U.S. consumers to perceive VW as a domestic manufacturer. “We look forward to [becoming] the biggest European carmaker [in the United States,” says Winterkorn.