Volkswagen is to spend $US1bn (EUR675m) on its Mexican plant, in Puebla.

Group CEO Martin Winterkorn made the announcement at a ceremony to celebrate the 10th anniversary of the launch of the Mexican-built New Beetle.

Winterkorn said the investment would be made over the next three years for "Jetta production and capacity optimisation at the Puebla plant which is expected to produce 450,000 cars this year, rising to 500,000 in 2009.

$2bn was invested in Puebla between 2003 and 2007. The plant currently produces the Bora/Jetta, Golf estate (wagon) and the New Beetle. It employs 16,000 people directly.

Winterkorn said a decision on a new plant in North America has not yet been made. VW is currently weighing up locations in the US, Mexico and Canada.

According to dpa, Winterkorn said: "For the kind of growth we are planning for the USA, we need to belong to the country and become a manufacturer."

Decisions are expected to be made in the next few months.

Volkswagen is not happy with its current performance in North America. In January VW brand sales were down 13.2%.

When asked whether Audi cars might also be produced in North America, he said: "If we have a car plant in the dollar zone, it follows that we would treat this is a group plant and would therefore very probably consider Audi cars for the plant."