New plant will supply engines to VW's North American production. The plant will have a capacity to build 330,000 engines a year.

VW has announced it will build a new engine factory in Mexico to supply engines to its expanding North American production network.

The $550 million (€412 million) engine plant will be built on an industrial site in Silao, in the state of Guanajuato in central Mexico. It is scheduled for completion by 2013. VW said the plant will have a capacity to build 330,000 engines a year and will be staffed by a workforce of 700 full-time employees.

The plant will be supplying engines to VW production plants in Peublo, Mexico, where it builds the Jetta model for the North American market, and to the German automaker's new plant in Chattanooga, Tennessee, where it will build the successor to the Passat for North America. The new U.S. plant will begin building what VW still is only calling the NMS (new mid-sized sedan) next year. It will be a larger and cheaper replacement for the Passat better suited to North American consumer tastes.

Volkswagen's Pueblo plant also makes the New Beetle and other models for the Latin American market. The plant will also build the next-generation New Beetle starting in 2012.

The announcement was made at a ceremony at Los Pinos, the presidential palace in Mexico City, where Mexican President Felipe Calderon Hinojosa was on hand as host.

Gallery: VW to build engine plant in Mexico by 2013 - will supply new Chattanooga plant