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VW's key crossover for U.S. delayed by incentive tug-of-war, report says

VW announced plans for a new crossover for North America at the Detroit auto show in January. It is part of a $7 billion investment package for North America.

BERLIN (Reuters) -- A tug-of-war between Mexico and Tennessee over financial incentives is delaying Volkswagen AG's decision on where to build a make-or-break VW crossover in North America, sources said, delaying the German group's efforts to fix its ailing U.S. business.

Last week, the state of Tennessee reopened talks with VW on tax breaks and infrastructure to lure the firm to build a mid-sized crossover at its Chattanooga plant, after a pitch by Mexican authorities, sources told Reuters on Monday.

Level-pegging between Chattanooga and Mexico means it could take at least until the end of June for VW to pick a production venue, either its $1 billion Chattanooga plant or a site in Mexico, two sources familiar with the matter said.

VW had initially hoped to make the decision by now, sources said. It announced the crossover at the Detroit auto show in January as part of a $7 billion investment package for North America.

"VW is taking way too long again to tackle another pressing U.S. problem," said Arndt Ellinghorst, London-based analyst at ISI Group. "The crossover will be a gainful addition to their portfolio, VW has got no time to waste."

Following a 2011-12 sales surge, U.S. deliveries of VW's core passenger car brand slumped 7 percent last year and are 10 percent down in the January-April period this year at 118,154 vehicles, even as the world's No. 2 auto market kept growing.

Given typical development cycles, the crossover might not go on sale in the United States until 2016, five years after VW launched its locally-made mid-sized Passat saloon.

Analysts have long urged VW to expand its U.S. lineup, especially with SUVs, where offerings are confined to the compact Tiguan and the mid-sized Touareg, which at $44,570 is almost 10 percent more expensive than the premium Lexus RX from Toyota.

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