Hit hard by currency exchange costs, Audi AG is considering building a factory in the United States.

Martin Winterkorn, chairman of Audi, said plans are in a preliminary stage and no decision has been made. If Audi goes ahead with this project, it would construct a plant in the United States rather than in Puebla, Mexico, where sister division Volkswagen has a massive facility.

Audi is shielded by hedging for 2005 against major currency losses, Winterkorn told Automotive News Europe. "But I do not know what will happen in 2006 and 2007."

"This is a very difficult decision," Winterkorn added.

Key to the plant decision is what vehicle Audi would produce in the United States. Winterkorn says it would have to be a product primarily for the US market.

"We have to pick a car that fits the American market but not Europe. We have to build cars there only for the American market. It is very expensive if the cars come to Europe," Winterkorn said.

Johan de Nysschen, executive vice president of Audi of America, said Audi also needs to consider the issue of volume. "You need a certain kind of critical mass to achieve economies of scale.

"If you do that with the point-of-view of a car that is primarily designed for the North American market, we need to be a little bit pragmatic in terms of where we are with market share and customer base and market presence."

De Nysschen said "where we are today is quite right for setting up a car plant for those volumes."

Meanwhile, Audi is cutting costs and looking to increase the components it sources from the United States, Winterkorn said.

"Every day we have pricing discussions. We have big problems and must discuss this issue of the American market very, very intensely."