The carmaker announced at Detroit that the decision on a budget brand would be made this year, with any venture almost certain to start in China – where the brand has seen a sharp increase in sales in 2012 – but also targeting the fast-developing markets in India and place such as Mexico.

Dr Ulrich Hackenberg, who heads the company's product planning and engineering divisions, said that the plan would be to introduce a car about £1,200 below VW's current cheapest offering, the up!

‘It will be tough but, with our experience, not impossible,’ said Hackenberg. ‘Such a car can only be built in a country with low production costs.

‘The suppliers and the materials would have to be localised – deeply localised. By sourcing the second and even third-tier parts in those countries we could save a lot of money.’

However, issues including tackling the different requirements of the various new markets, offering good styling and additional equipment would need to be resolved too. It would also need to exceed basic safety requirements.

Hackenberg added: ‘We would be thinking to sell it under a new brand name because you cannot enlarge the offer of any brand [VW] too far.’