Two sites in Alabama and Tennessee have emerged as favourites for a new Volkswagen assembly plant.

According to the Detroit Free Press, officials in both locations are lobbying hard for the US$1bn investment.

Michigan is currently the manufacturer's third choice for a location. The newspaper reports that financial analysts say that Michigan's history of labour disputes is of concern to foreign investors.

Volkswagen has said that it is planning a plant to produce 250,000 cars a year and employ 2,000 people from 2010. It plans to produce a million vehicles in the US annually by 2018.

Rumoured plant locations are near Chattanooga, Tennessee, and Huntsville, Alabama. A Tennessee senator reportedly said that VW will chose between Alabama and Tennessee.

The newspaper notes that southern states have invested heavily in preparing sites so that they can be marketed to manufacturers. Both sites are more than 1,000 acres and have been prepared by governments over the last few years so that building can start quickly.