Volkswagen will build a seven-seater crossover vehicle for the North American market at its Chattanooga, Tennessee plant.

According to Reuters, citing Frankfurter Allgemeine Zeitung, the Chattanooga factory will be chosen ahead of a site in Mexico because the Tennessee state government is providing free land, staff training, tax breaks and infrastructure upgrades worth about US$300m to the company.

Volkswagen first unveiled its plan to build an SUV for North America last January. The car is expected to be launched in 2016.

Chattanooga currently builds a unique version of the Passat for North America.