Volkswagen AG is headed to Tennessee to build cars in the U.S. after it picked the southern state as the site for its new plant.

Christian Wulff, the governor of Lower Saxony and who sits on the supervisory board of Europe's largest automaker, told The Associated Press that Europe's biggest automaker picked the city after the board, the German equivalent of a U.S. board of directors, debated the merits of the location and its benefits.

Volkswagen closed its last U.S. production facility in 1988.

The company wants to increase its presence in the U.S., where it holds only 2 percent of the market. VW officials have said the company intends to more than triple its U.S. sales to 1 million by 2018.

"Volkswagen is the biggest company in Lower Saxony, and well on it's way," Wulff said.

Details on the plant, including how many workers it would employ, when it would be completed and what model of cars that may be produced there was not immediately released.

The German state of Lower Saxony owns more than 20 percent of Volkswagen.

He said that 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 number two 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 US$1.6038 on Tuesday, making goods exported from Germany more expensive in the United States.

Chattanooga, Tennessee beat out bids by Alabama and Michigan for the plant, which is part of the Wolfsburg-based company's strategy to increase its presence in America.