German carmaker Volkswagen announced on Tuesday it would invest close to €1 billion ($1.59 billion) to build its first factory in the United States after the closure of its last plant 20 years ago. The company said it expects to open a new plant in Chattanooga, Tennessee by 2011. VW plans to produce 150,000 automobiles annually at the site as part of its effort to increase market share in America, which has eroded in recent years.

The new plant will be key to VW's declared strategy of increasing its annual car sales in the US by 2018 to 800,000. The company has a long way to go to reach that goal. In 2007, VW sold 230,000 cars from its VW line in the US as well as 93,000 Audi models, giving it a total market share in the country of only 2 percent.

The Chattanooga plant will also help buffer Volkswagen from dollar-euro currency fluctuations that have recently been a drag on its bottom line. "This, along with our growth strategy, is a prerequisite for the economic success of the company in the dollar region," VW CEO Martin Winterkorn said. He said the perception the factory would create in the US -- namely that VW is a domestic manufacturer -- could also help fuel its success. The company says the first car to roll off the assembly line will be a mid-size sedan designed especially for the American market.

Initially the company says it only plans to build VW models in Chattanooga, but it is considering production of Audi models in the future. Audi is also considering opening its own US plant. "We will make a decision about a location in the US early next year," a spokesperson said.

The US is a central part of Winterkorn's plan to increase VW turnover to 10 million automobiles in the next decade. The company is trying to surpass Toyota as the world's largest carmaker. By 2018, the company wants to sell a million cars a year in America. In the midst of current staggering oil prices, though, it may prove to be an overly ambitious goal. The energy crisis has paralyzed the US automobile market, and US carmakers like General Motors, Ford and Chrysler are all starting to move away from once lucrative, but gas-guzzling SUV and truck lines.