Volkswagen will decide this year whether to introduce a new budget brand aimed at developing markets.

If the company decides to go ahead, it would almost certainly start in China, where it achieved a near-25% increase in sales to 2.15m in 2012.

But India and other markets such as Mexico could also be targets for a low-cost VW brand.

The aim would be to bring a car in about GBP1,200 (US$1,900) below VW's current cheapest offering, the up!, according to Ulrich Hackenberg, who heads the company's product planning and engineering divisions.

"It will be tough but, with our experience, not impossible," added 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."

One issue is the different requirements of the various new markets. China would want a fairly large car while India would want something small so the fundamentals would have to be "flexible and capable of derivatives".

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."

It would also have to be more than just a basic budget car, Hackenberg said. "It has to fulfill not only mobility - the customer wants to love his car. It needs to have good styling and offer optional equipment which the customer can maybe buy later."

Hackenberg said any such car from VW would meet more than basic safety requirements.

"We would make our decision based on the competition in that market. If the competitors had a three-star car then maybe we would aim to go for four stars."