Volkswagen is considering building its new "baby Bentley" model in the Dresden, Germany, factory where it assembles its luxury VW Phaeton sedan, the company reportedly said.

"Since the factory (in Crewe, England) is reaching full capacity, one could theoretically build some of the smaller four-door Bentley models, which are expected to hit the market around the middle of next year, in Dresden," a spokesman told Reuters.

He reportedly added that this was only a consideration and that even should this be the case, a number of models would still have to be assembled in England to maintain the brand's image.

Reuters said VW's Bentley model, which would be smaller than its Arnage and based on its luxury Continental GT coupe, would be positioned above the full-sized luxury sedan class in which BMW's 7 series and the Mercedes S class compete.

VW produces only the Phaeton in Dresden, the news agency noted. The vehicle has struggled to boost sales as luxury sedan buyers have favoured the S class, 7 series or Audi A8.