Abu Dhabi and Volkswagen have reached agreement in principle to set up a joint company to invest in the motor industry in the Gulf emirate, according to reports.

The head of the emirate's economy department said that investments in five car projects beginning early next year would reach $US545 million in a first phase and $1.36 billion in a second phase.

The new company would finance part of these projects, to be implemented in a specialised industrial zone, while Volkswagen would bring in strategic partners to put up the rest of the funds.