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Adding a vote of confidence to Mexico's struggling auto industry, Volkswagen has announced that it will begin assembly of a new compact car (working title "New Compact Sedan") in the country next year.

The German automaker will invest about $1 billion in the program, with $400 million of the funds directed towards a new assembly line at its plant in Puebla. The facility currently produces Jetta and New Beetle models – in 2008, a record 450,000 units were produced with about 80 percent of the volume exported.

The news follows the report last year, when Volkswagen announced a $1 billion investment in Chattanooga, Tennessee, to begin production of a mid-size sedan for the North American market. With a capacity of 150,000 vehicles, the Chattanooga assembly plant is scheduled to open in 2011.

[Source: Automotive News, subs. req'd]

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