VW will add about 2,000 jobs at the plant, Winterkorn said in a press conference near the company’s headquarters here.
VW declined to reveal what kind of incentive package Tennessee provided for the expansion. The plant currently builds the Passat sedan.
VW officials would only say unit production of the crossover would be in the six-figure range. It will be sold in North America and other markets, and built on the same vehicle platform as the Passat. The Chattanooga plant built 130,000 Passats at its peak in 2011.
Winterkorn said the initiatives reflect VW’s long-term commitment to the North American market.
"This is the beginning of the second Volkswagen offensive in the U.S.,” he said in press conference. “We want to be even faster in meeting the targeted wishes of customers in the United States."
Winterkorn added: “Our big objective is clear: By 2018, the Volkswagen brand wants to sell about 800,000 vehicles per year in the U.S. and we will do our utmost to achieve that."
Last year, VW tallied 407,704 U.S. sales, a 7 percent decline from 2012. This year’s sales are down 13 percent in a U.S. market that was up 4 percent to nearly 8.2 million units after six months and continues to grow.
The decision to expand in Tennessee also shows that the U.S. South remains competitive in the eyes of overseas auto executives despite the ascendancy of Mexico, where luxury marques BMW, Mercedes-Benz and Audi have all announced plans to start production by 2020.
The new, mid-sized VW crossover is based on the CrossBlue concept vehicle shown at the 2013 Detroit auto show. It was developed specifically for the U.S. market using Volkswagen’s new MQB toolkit.
The seven-seat vehicle will fill a hole in VW’s U.S. vehicle lineup, where it is expected to compete against vehicles such as the Honda Pilot, Ford Explorer and Toyota Highlander.
The new crossover is key to VW’s growth plans. The overall U.S. market is expanding on demand for crossovers, pickups and SUVs — where VW’s lineup is thin.
In his speech, Winterkorn said the new crossover will be large, attractive and have many high-tech features. "We are listening even closer to the wishes of American drivers," he added.
VW Group of America CEO Michael Horn has said that he sees the large crossover becoming one of VW’s four core U.S. models, along with the Jetta compact sedan, the Passat and an Americanized heir to the Tiguan compact CUV.
Even before the CrossBlue’s unveiling in early 2013, the crossover was expected to be built at the Chattanooga plant, which opened in 2011 with an annual capacity of 150,000 vehicles and employs about 2,500 people.
Frank Fischer, who led the Chattanooga plant until March, told Automotive News last year that building an assembly line for the new crossover would increase the plant’s capacity to 250,000 units per year.
Tennessee Governor Bill Haslam and officials from Tennessee’s economic development agency offered about $300 million in incentives for VW to build the plant in the state and hire more employees.
But the decision became tangled in politics around a contentious UAW vote, as Haslam warned workers that voting for union representation would make it harder for the state to attract businesses. Talks between VW and the state were put on hold, but resumed after line workers narrowly rejected UAW representation in February.
The state gave VW a new offer of tax breaks, training and infrastructure improvements also worth about $300 million, the Frankfurter Allgemeine Zeitung newspaper reported in June, citing unidentified VW sources.
In his remarks, Winterkorn thanked Haslam, Sen. Bob Corker (R-Tenn), Chattanooga Mayor Andy Berke and Hamilton County Mayor Jim Coppinger for their work related to the plant.
The opening of the Chattanooga plant marked VW’s first U.S. production since the closure of a Westmoreland County, Pennsylvania, assembly plant in 1988.
VW’s only other North American assembly site is its nearly 50-year-old factory in Puebla, Mexico, that builds small cars such as the Jetta, Beetle and Golf.
Gabe Nelson and Reuters contributed to this report